<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER , 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ATL PRODUCTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3572 95-3824281
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
1515 SOUTH MANCHESTER AVENUE
ANAHEIM, CALIFORNIA 92802-2907
(714) 780-7200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
KEVIN C. DALY, PH.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ATL PRODUCTS, INC.
1515 SOUTH MANCHESTER AVENUE
ANAHEIM, CALIFORNIA 92802-2907
(714) 780-7200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
PATRICK ARRINGTON, ESQ. JEFFREY D. SAPER, ESQ.
ELLEN S. BANCROFT, ESQ. HOWARD S. ZEPRUN, ESQ.
SUSAN N. CAYLEY, ESQ. KAIVAN M. SHAKIB, ESQ.
NEEL GROVER, ESQ. MATTHEW MACKENZIE, ESQ.
BROBECK, PHLEGER & HARRISON LLP WILSON SONSINI GOODRICH & ROSATI
4675 MACARTHUR COURT, SUITE 1000 PROFESSIONAL CORPORATION
NEWPORT BEACH, CALIFORNIA 92660 650 PAGE MILL ROAD
(714) 752-7535 PALO ALTO, CALIFORNIA 94304-1050
(415) 493-9300
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
AMOUNT
TITLE OF EACH CLASS AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM OF
OF SECURITIES TO BE OFFERING AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED(1) PRICE PER SHARE(2) OFFERING PRICE(2) FEE(2)
<S> <C> <C> <C> <C>
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Common Stock............................... 1,895,000 $12 $22,740,000 $6,891
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</TABLE>
(1) Includes up to 245,000 shares of Common Stock which may be purchased by the
Underwriters to cover over-allotments, if any.
(2) Estimated pursuant to Rule 457(a) solely for the purpose of calculating the
registration fee.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
SUBJECT TO COMPLETION, DATED DECEMBER 23, 1996
1,650,000 SHARES
LOGO
COMMON STOCK
All of the shares of Class A Common Stock, $.0001 par value, (the "Common
Stock") offered hereby are being sold by ATL Products, Inc. (the "Company").
Prior to this Offering, there has been no public market for the Common Stock of
the Company. It is currently estimated that the initial public offering price
will be between $10 and $12 per share. See "Underwriting" for factors to be
considered in determining the initial public offering price. The Company will
apply to have the Common Stock approved for quotation on the Nasdaq National
Market under the symbol "ATLPA."
The Company has two classes of common stock outstanding, the Class A Common
Stock and the Class B Common Stock. The rights, preferences and privileges of
each class of common stock are identical in all respects except for voting
rights. Each share of Common Stock entitles its holder to one vote and each
share of Class B Common Stock entitles its holder to .05 votes. The Class B
Common Stock is not convertible into the Common Stock. As of the date of this
Prospectus, no shares of Class B Common Stock were outstanding. Unless otherwise
indicated, all references to "Common Stock" shall refer to the Company's Class A
Common Stock. See "Description of Securities."
Prior to this Offering, Odetics, Inc., a Delaware corporation ("Odetics"),
owns 100% of the outstanding shares of the Company's Common Stock, and upon
completion of this Offering Odetics will own 82.9% of the Company's Common Stock
(or 80.9% if the Underwriters' overallotment option is exercised in full) and
will continue to control the Company. Odetics has announced its intention,
subject to satisfaction of certain conditions, to divest its ownership interest
in the Company by December 31, 1997 by means of a tax-free distribution to its
stockholders. See "Principal Stockholder" and "Relationship Between the Company
and Odetics."
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING
ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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Price to Underwriting Proceeds to
Public Discount(1) Company(2)
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<S> <C> <C> <C>
Per Share................................ $ $ $
Total(3)................................. $ $ $
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</TABLE>
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company estimated at $575,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 245,000 additional shares of Common Stock solely to cover
over-allotments, if any. If the Underwriters exercise this option in full,
the Price to Public will total $ , the Underwriting Discount will
total $ and the Proceeds to Company will total $ . See
"Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and subject to their right to
reject any orders in whole or in part. It is expected that delivery of the
certificates representing such shares will be made against payment therefor at
the office of Montgomery Securities on or about , 1997.
------------------------
MONTGOMERY SECURITIES CRUTTENDEN ROTH
INCORPORATED
, 1997
<PAGE> 3
[COLOR PHOTOS AND ART WORK]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information including "Risk Factors" and Financial Statements and the Notes
thereto appearing elsewhere in this Prospectus. The shares of Common Stock
offered hereby involve a high degree of risk. This Prospectus contains, in
addition to historical information, forward-looking statements that involve
certain risks and uncertainties. The Company's actual results may differ
substantially from the results discussed in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in the sections entitled "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business," as well as those discussed elsewhere in this Prospectus.
THE COMPANY
ATL Products, Inc. (the "Company") designs, manufactures, markets and
services automated magnetic tape libraries used to manage, store, and transfer
data in networked computing environments. The Company is a leading provider of
Digital Linear Tape ("DLT") automated tape libraries for the high end of the
networked computing market (one terabyte capacity and above), shipping over
2,000 systems during the past three years. The Company's products provide a high
performance, reliable, cost effective and scaleable storage solution for
organizations requiring the backup, archival and recovery of critical computer
data.
The Company's products incorporate DLT(TM) tape drives as well as the
Company's proprietary IntelliGrip(TM) cartridge handling system, providing end
users with rapid and reliable access to computer data across a wide variety of
networks. The Company believes that the growing market acceptance of DLT
technology has been driven by a number of factors, including performance, cost,
reliability and durability advantages over competing storage technologies. The
Company's proprietary robotics system within each automated tape library
provides additional speed and reliability due to the accurate and timely manner
in which tape cartridges are loaded to and unloaded from the DLT drives. The
Company's products are compatible with commonly used network operating systems,
protocols and topologies as well as with a broad range of storage management
software. In addition, these products are highly scaleable and permit maximum
flexibility of configuration. For example, the Company's 2640 Series is capable
of storing 9.2 terabytes of data as a standalone unit or up to 46 terabytes of
data with the SystemLink Option, which links up to five 2640 units together for
larger storage requirements.
The Company's objective is to be the leading provider of automation
solutions for the management and protection of data storage in distributed
computing environments. The key elements of the Company's strategy to achieve
this objective are (i) to develop new products incorporating improved robotics,
advanced network connectivity and evolving storage technologies, (ii) to develop
additional proprietary software to enhance performance in the areas of system
monitoring and volume management, (iii) to broaden the range of product
offerings to address both the rapidly growing Windows NT market as well as the
high performance data warehousing market, (iv) to continue to strengthen and
enhance relationships with both original equipment manufacturers ("OEMs") and
value added resellers ("VARs"), and (v) to provide extensive customer support to
end users. In early 1997, the Company plans to introduce its Prism product line,
providing broader market coverage, additional software functionality and a rack
mounted design for easy integration into existing storage systems.
The Company sells its products through indirect distribution channels,
including OEMs such as Auspex, EMC, Hewlett-Packard and Sun Microsystems, as
well as a network of VARs who specialize in storage solutions. In addition, the
Company maintains cooperative marketing relationships with a number of
independent software developers whose product offerings are complementary to
those of the Company. Selected end users of the Company's automated tape
libraries include Intel, AT&T, Hewlett-Packard, IBM, Chevron, Bank of Boston,
Warner Bros., British Airways and Swiss Bank Corporation.
The Company was incorporated in California in February 1993 as a wholly
owned subsidiary of Odetics and was reincorporated in Delaware in December 1996.
The Company's executive offices are located at 1515 South Manchester Avenue,
Anaheim, California 92802-2907, and its telephone number at that location is
(714) 780-7200.
3
<PAGE> 5
RELATIONSHIP WITH ODETICS, INC.
Odetics currently owns 100% of the Company's outstanding Common Stock. Upon
consummation of this Offering, Odetics will own 82.9% of the total voting power
of the outstanding Common Stock (or 80.9% if the Underwriters' over-allotment
option is exercised in full). See "Principal Stockholder." As a result of its
ownership interest, Odetics will be able to control the vote on most matters
submitted to stockholders, including the election of directors and the approval
of extraordinary corporate transactions. The Company and Odetics have entered
into a number of agreements for the purpose of defining their ongoing
relationship. While these agreements will continue to provide the Company with
certain services, the Company is entitled to the ongoing assistance of Odetics
only for a limited time and it may not receive such services beyond the terms of
the agreements. Odetics has announced that, subject to certain conditions
(including the receipt of a favorable private letter ruling from the Internal
Revenue Service concerning the tax free nature of the Distribution, for which
Odetics has applied), Odetics intends to distribute (the "Distribution") to its
stockholders prior to December 31, 1997, all of the Common Stock of the Company
owned by Odetics following the Offering. The Company will pay to Odetics the
lesser of 40% of the net proceeds of this Offering before deducting estimated
offering expenses or $10 million to reduce the Company's obligations to Odetics,
and will enter into a Promissory Note payable to Odetics representing the
balance of its obligations to Odetics. Such Note will accrue interest at the
rate charged to Odetics from time to time by its principal lender and is payable
in sixteen equal quarterly installments of principal plus accrued interest. See
"Risk Factors -- Control by Odetics Pending the Distribution," "-- Absence of
History as an Independent Entity; Limited Relevance of Historical Financial
Information," "Relationship between the Company and Odetics" and "Principal
Stockholder."
- ---------------
Except as otherwise indicated, all information contained in this Prospectus
(i) assumes no exercise of the Underwriters' over-allotment option, (ii) assumes
no exercise of options to purchase 879,000 shares of Class B Common Stock
granted under the 1996 Stock Incentive Plan in December 1996, and (iii) gives
effect to the reincorporation of the Company as a Delaware corporation and the
recapitalization effected in connection therewith, including the authorization
of two classes of common stock, the Common Stock and the Class B Common Stock,
the exchange of each share of the Company's previously issued common stock for
8,005 shares of Common Stock. See "Underwriting" and "1996 Stock Incentive
Plan."
StorLink, IntelliGrip, Data Storm, Prism, ATL 7100, ATL 520, ATL 2640, ATL
6/176, ATL 9/88, ATL 4/52 and ATL 2/28 are trademarks of the Company. This
Prospectus also includes trade names and trademarks of companies other than the
Company.
4
<PAGE> 6
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company................ 1,650,000 shares
Common Stock to be outstanding after the
Offering......................................... 9,655,000 shares(1)
Use of proceeds.................................... For the repayment of certain indebtedness to
Odetics in an amount equal to the lesser of 40%
of the net proceeds of this Offering before
deducting estimated offering expenses or $10
million and for general corporate purposes,
including working capital. See "Use of
Proceeds."
Proposed Nasdaq National Market Symbol............. ATLPA
</TABLE>
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(1) Excludes 879,000 shares of Class B Common Stock issuable upon the exercise
of stock options granted on December 19, 1996 under the 1996 Stock Incentive
Plan at an exercise price of $5.00 per share. An additional 1,121,000 shares
of Common Stock have been reserved for issuance under this plan. The Class B
Common Stock is substantially identical to the Common Stock except that each
share of Class B Common Stock is entitled to .05 of one vote. See
"Management -- 1996 Stock Incentive Plan," "Description of Securities" and
"Note 10 of Notes to Consolidated Financial Statements."
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
------------------------------- -------------------
1994 1995 1996 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
PRO FORMA(1):
Net sales....................................... $20,506 $22,992 $29,410 $ 9,013 $27,040
Gross profit.................................... 4,789 6,297 10,549 2,747 10,900
Income (loss) from operations................... (1,353) (6,219) 759 (1,262) 4,777
Net income (loss)............................... (1,895) (7,462) (1,240) (2,157) 2,309
======= ======= ======= ======= =======
Net income (loss) per share..................... (.15) .27
======= =======
Shares used in computation of net income (loss)
per share..................................... 8,484 8,484
======= =======
HISTORICAL:
Net sales....................................... $16,189 $18,519 $23,936 $ 6,908 $23,649
Gross profit.................................... 3,385 4,096 7,735 1,931 8,681
Income (loss) from operations................... (1,820) (6,265) 354 (982) 3,374
Net income (loss)............................... (2,211) (7,290) (1,275) (1,762) 1,534
======= ======= ======= ======= =======
Net income (loss) per share..................... (.26) (.86) (.15) (.21) .18
======= ======= ======= ======= =======
Shares used in computation of net income (loss)
per share(2).................................. 8,484 8,484 8,484 8,484 8,484
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
---------------------------
ACTUAL AS ADJUSTED(3)
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<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital (deficit)................................................. $(10,263) $ 19,876
Total assets.............................................................. 15,945 25,498
Total liabilities......................................................... 24,524 17,772
Total stockholders' equity (deficit)...................................... (8,579) 7,726
</TABLE>
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(1) The pro forma presentation reflects (i) net sales of the Company's products
recorded by Odetics on sales of the Company's products net of the
elimination of intercompany sales and (ii) the purchase by the Company in
December 1996 of the net assets (at their historical book value) of the
business of Odetics which provides service for the Company's products. No
shares of the Company's Class B Common Stock are outstanding as of the date
of this Prospectus.
(2) See Note 1 of Notes to Consolidated Financial Statements.
(3) Adjusted to reflect the sale of 1,650,000 shares of Common Stock by the
Company at an assumed public offering price of $11 per share and the
application of the estimated net proceeds therefrom including the payment of
$6.8 million to Odetics which represents 40% of the net proceeds of this
Offering before deducting offering expenses. See "Use of Proceeds."
5
<PAGE> 7
RISK FACTORS
This Prospectus contains forward looking statements which involve a number
of risks and uncertainties. Actual results could differ materially from those
discussed in the forward looking statements. Factors that could cause actual
results to differ materially include, without limitation, the risk factors
discussed below as well as the risks discussed in "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business" and
elsewhere in this Prospectus. In addition to the other information contained in
this Prospectus, the following Risk Factors should be considered carefully in
evaluating the Company and its business before purchasing the Common Stock
offered hereby.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; HISTORY OF OPERATING LOSSES
The Company's quarterly operating results have fluctuated in the past and
may continue to fluctuate in the future based on a number of factors, not all of
which are in the Company's control. These factors include, without limitation,
the size and timing of significant customer orders; the introduction of new
products by competitors; the availability of components used in the manufacture
of the Company's products; changes in pricing policies by the Company, its
suppliers or its competitors; the ability of the Company to develop, introduce,
market and gain market acceptance of new products, applications and product
enhancements in a timely manner and to control costs; the Company's success in
expanding and implementing its sales and marketing programs; technological
changes in the distributed computing markets; the mix of sales among the
Company's channels; deferrals of customer orders in anticipation of new
products, applications or product enhancements; currency fluctuations; and
general economic and market conditions. Moreover, the Company's sales in any
quarter typically consist of a relatively small number of large OEM and VAR
customer orders, and the timing of a small number of orders can impact quarter
to quarter results. The loss of or a substantial reduction in orders from any
significant customer, such as the cancellation by E-Systems in 1994 of purchase
orders in the amount of $2.0 million for the Company's products, could have a
material adverse effect on the Company's business, financial condition and
results of operations. Since the Company's sales are primarily made through OEMs
and VARs who typically provide the Company with relatively short lead times, it
is often difficult for the Company to forecast the timing and quantity of orders
accurately. The Company's expense levels and its purchases of parts, components
and subassemblies are based in part upon its expectations concerning future
revenues. Accordingly, if revenue levels are below expectations, whether as a
result of product transition or otherwise, operating results are likely to be
adversely affected.
While the Company has generated net income in its last three fiscal
quarters, it incurred significant losses in all prior fiscal periods since its
formation. Although the Company has experienced significant growth in revenues
in recent periods, such growth may not be sustainable and may not be indicative
of future operating results. There can be no assurance that the Company will
achieve profitability on a quarterly or annual basis in the future. During the
first calendar quarter of 1997, the Company plans to relocate its corporate
headquarters and manufacturing facilities to a new plant in Irvine, California.
This relocation could have a disruptive effect upon the Company's manufacturing
operations, and the Company's inability to manage the relocation effectively and
efficiently would have a material adverse affect on the Company's results of
operations for that period. Due to all of the foregoing factors and other risks
discussed below, it is possible that in some future period the Company's
operating results may be below the expectations of analysts and investors. In
such event, the price of the Company's Common Stock would probably be materially
and adversely affected. See "-- Reliance on OEMs and VARs," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business -- Manufacturing" and "-- Facilities."
DEPENDENCE ON QUANTUM
The Company's success depends in large part upon its relationship with
Quantum Corporation ("Quantum"), which has the exclusive worldwide manufacturing
rights for the DLT technology and is the Company's sole supplier of DLT tape
drives. The Company currently derives substantially all of its revenues from the
sale of its DLT based products and related services, and the Company expects
that revenues from its DLT based products will continue to account for
substantially all of the Company's revenues for the foreseeable future. The
Company's future operating results will depend substantially on the Company's
6
<PAGE> 8
relationship with Quantum and the Company's ability to continue to obtain
adequate supplies of DLT drives from Quantum. While the Company has not
experienced allocation shortages to date, Quantum has in the past been unable to
supply certain of its customers with their full allocation of drives. In this
regard, the Company's contractual agreement with Quantum permits Quantum to
terminate its arrangement with the Company for any reason upon providing 90 days
written notice to the Company. The disruption or termination of the Company's
supply of DLT drives from Quantum would have a material adverse effect on the
Company's business, financial condition and results of operations. Quantum has
also historically sold DLTStore(TM), a competing tape library addressing the
lower end of the distributed computing market and may introduce other storage
libraries in the future. To the extent such products marketed by Quantum compete
directly with the Company's products, the existence of such products could
disrupt the Company's relationship with Quantum, particularly if Quantum chooses
to satisfy its own demand first. In addition, Quantum currently supplies drives
to all of the Company's competitors, and there can be no assurance that the
Company's competitors will not establish relationships with Quantum in which the
competitors could achieve higher priority in the supply of DLT drives. Moreover,
since Quantum has only one manufacturing facility for DLT drives located in
Colorado Springs, Colorado, any disruption in Quantum's ability to continue to
manufacture and supply the Company with DLT tape drives, whether as a result of
a natural disaster or otherwise, would have a material adverse affect on the
Company's business, financial condition and results of operations. See
"-- Single Product Line; Dependence on DLT."
SINGLE PRODUCT LINE; DEPENDENCE ON DLT
The Company's current product families are all based on DLT technology, and
the Company expects that revenues from DLT products will continue to account for
substantially all of the Company's revenues for the foreseeable future.
Accordingly, the Company's operating results for the foreseeable future will be
substantially dependent on the continued market acceptance of DLT technology and
growth of the DLT library market. The DLT market is relatively new, and there
can be no assurance that another technology will not replace or adversely affect
DLT technology as a widely accepted data storage medium. In addition, due to the
relatively recent emergence of the DLT market, the Company expects that
additional companies may introduce products incorporating DLT technology
competing directly with the Company. Any decline in the rate of growth of the
DLT market or failure of the market to sustain acceptance of DLT technology, or
any decline in unit prices of the Company's products as a result of increased
competition, technological change or otherwise, would have a material adverse
effect on the business, operating results and financial condition of the
Company. The life cycle of the Company's current products is difficult to
estimate due to the recent emergence of the DLT market and uncertainties
associated with potential introductions of new products and technologies by
competitors, as well as potential technological changes in the secondary storage
industry in which DLT operates. The Company's future financial performance will
depend upon the continued market success of DLT technology, as well as the
Company's ability to successfully develop, introduce and achieve market
acceptance of new products, applications and product enhancements as the data
storage market evolves. There can be no assurance that the Company will continue
to be successful in marketing its DLT products or in developing and marketing
any new products, applications or product enhancements. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business -- Products," "-- Research and Development" and "-- Competition."
EFFECT OF NEW PRODUCT INTRODUCTIONS
The Company's future operating results will depend significantly on the
degree and timing of market acceptance of the Company's 7100 Series (which was
introduced in November 1996), the new Prism product family (which the Company
plans to introduce in calendar 1997) and other new products. It is difficult to
predict the effect that the announcement of these or other new products (or
enhancements to existing products) will have on sales of current products
pending the full availability of the new products, or the rate at which such
products will be accepted by the market, if at all. For example, the DLT 7100
and the Prism products could result in a reduction in the sales of the Company's
520 Series products in anticipation of the new libraries by the Company's
customers. In addition, manufacturing defects or other operational problems
commonly associated with new product introductions could adversely affect the
successful introduction of
7
<PAGE> 9
such new products. There can be no assurance that the Company will be able to
introduce new products or enhancements to existing products on a timely basis,
if at all, or the effect to which such introductions will have on sales of
existing products. See "Business -- Products Under Development" and
"-- Competition."
COMPETITION
The data storage market is intensely competitive, highly fragmented and
characterized by rapidly changing technology and evolving standards. Competitors
vary in the number, scope and breadth of the products and services offered. The
Company's principal competitors in the DLT segment of the market include
Advanced Digital Information Corporation ("ADIC"), Breece Hill Technologies,
Hewlett-Packard and StorageTek. Since DLT is still an emerging technology and
currently represents one of the smallest segments of the tape storage market,
the Company competes indirectly with a large number of manufacturers offering
tape storage systems using formats other than DLT, including 8mm, 4mm (DAT),
half inch format (3480) and QIC. Many of these indirect competitors have larger
installed bases and may be expected to continue to provide intense competition
for the DLT format. These competitors include ADIC, Exabyte, Fujitsu, Hitachi,
IBM, Spectra Logic and StorageTek. The Company also competes with suppliers of
other removable storage media such as optical storage systems and floppy disks.
These competitors are expected to expand the functionality and performance of
their selected storage technologies which may render such technologies even more
competitive as compared to DLT. In addition, if DLT continues to maintain market
acceptance, many of these competitors could elect to offer DLT systems. The
Company also expects additional competition from large integrated computer
equipment companies, many of whom have historically incorporated their own tape
storage products into their mainframe systems, and are broadening their focus to
include the distributed computing markets. In addition, because there are
relatively low barriers to entrance into the tape library market, the Company
anticipates increased competition from other established and emerging companies.
Increased competition is likely to result in price reductions, reduced gross
margins and loss of market share, any of which could have a material adverse
affect upon the Company's business, operating results and financial condition.
Many of the Company's current and potential competitors have significantly
greater financial, technical, manufacturing, marketing and other resources than
the Company, and may be able to respond more quickly to new or emerging
technologies and changes in customer requirements, or to devote greater
resources to the development, promotion, sale and support of their products than
the Company. Accordingly, there can be no assurance that the Company will be
able to continue to compete effectively. See "Business -- Competition."
RELIANCE ON OEMS AND VARS; CONCENTRATION OF SALES
The Company relies heavily upon its relationships with selected OEMs who
sell and support the Company's products as part of their comprehensive data
storage systems. Sales through OEMs accounted for approximately 100%, 65%, 29%
and 30% of the Company's total revenues in fiscal 1994, 1995, 1996 and the six
months ended September 30, 1996, respectively. The Company is currently
investing, and intends to continue to invest, significant resources to develop
these OEM relationships. These expenditures could materially and adversely
affect the Company's operating margins unless the Company is able to achieve
commensurate growth in sales to OEMs. In addition, the Company is dependent upon
its OEMs' ability to develop new products, applications and product enhancements
incorporating the Company's products in a timely and cost effective manner that
will meet changing customer needs and respond to emerging industry standards and
other technological changes. There can be no assurance that the Company's OEM
customers will continue to meet these challenges effectively. The Company also
relies heavily on selected VARs who integrate the Company's products with
storage management software to provide comprehensive storage solutions. Most of
the Company's VARs carry product lines that are competitive with those of the
Company, and there can be no assurance that they will give the marketing of the
Company's products high priority, or that they will continue to carry the
Company's products. The Company's agreements with VARs and OEMs are generally
not required to be exclusive, and in many cases may be terminated by either
party at any time with limited notice and without cause. A small number of
customers has historically accounted for a substantial portion of the Company's
net sales. The Company's largest ten customers accounted for an aggregate of
approximately 57% of the Company's net sales during the 18 month period ending
September 30, 1996. The loss of important
8
<PAGE> 10
OEMs or VARs, their reduced focus on the Company's products, or the inability to
obtain additional OEMs as the market evolves could materially and adversely
affect the Company's business, financial condition and operating results. See
"Business -- Sales and Marketing; Principal Customers."
DEPENDENCE ON INDEPENDENT SOFTWARE DEVELOPERS
The utility of an automated tape library is highly dependent upon the
storage management software which supports the library and integrates it into
the user's computing environment to provide a complete storage solution. The
Company does not develop such storage management software and relies on
independent software developers to provide software support and integration for
tape libraries for distributed computing environments. Accordingly, the
continued development and future growth of the market for the Company's products
will depend in large part upon the success of software developers to meet the
overall data storage and management needs of end users and the Company's ability
to maintain strong relationships with these firms. The Company has established
marketing relationships with more than 40 independent software developers to
provide broad compatibility for the Company's products. There can be no
assurance, however, that the Company will be able to maintain its existing
relationships or enter into new relationships with such software developers. The
Company's failure to do so could adversely affect sales of the Company's current
products. See "-- Dependence on Quantum" and "Business -- Sales and Marketing;
Principal Customers."
MANAGEMENT OF EXPANDING OPERATIONS
The Company is currently experiencing a period of rapid growth which has
placed and is expected to continue to place a considerable strain on the
Company's management and its administrative, sales and marketing, financial,
information systems and operational resources. From January 1, 1996 to November
30, 1996, the size of the Company's staff increased from 80 to 152 employees
including approximately 25 new employees hired as a result of the acquisition of
certain sales and service divisions of Odetics. Further significant increases in
the number of employees are anticipated during calendar 1997. The Company
believes its success will depend, in part, on its ability to integrate these and
additional new employees into the Company rapidly to respond to the anticipated
growth of the Company. Moreover, the Company has to date operated as a wholly
owned subsidiary of Odetics and has relied on Odetics for certain operational
and administrative systems. The Company and Odetics have entered into certain
agreements pursuant to which Odetics will continue to provide certain
facilities, information systems, payroll and benefits administration, financial
services and financial accounting services to the Company, pending the
establishment of an independent infrastructure by the Company. Although the
Company believes that this arrangement is satisfactory for its immediately
foreseeable future, the Company's ability to manage growth effectively will
require it to install its own operational, financial and management controls,
reporting systems and procedures, to establish new management information and
control systems and to train, motivate and manage its employees. There can be no
assurance that the Company will be able to install such operational, financial
and management information and control systems in an efficient and timely manner
or that the new structures, systems and controls will be adequate to support the
Company's operations and prevent the occurrence of unforeseen management or
financial issues. Continued growth will also require the Company to recruit
additional key management personnel (including a chief financial officer),
expand its engineering and product development capabilities, expand its sales
and marketing capabilities, improve its customer service and support functions
and to train, motivate and manage additional employees. There can be no
assurance that the Company will be able to manage these changes and implement
the required programs successfully, and its failure to do so could have a
material adverse effect upon the Company's business, financial condition and
operating results. See "Business -- Employees," "-- Customer Service and
Support," and "Relationship between the Company and Odetics."
ABSENCE OF HISTORY AS AN INDEPENDENT ENTITY; LIMITED RELEVANCE OF HISTORICAL
FINANCIAL INFORMATION
The Company has operated as a wholly owned subsidiary of Odetics since
January 1993 and, accordingly, has had no independent operating history. After
the Offering and prior to the Distribution (as defined below), the Company will
continue to be a subsidiary of Odetics, but will, subject to Odetics' rights as
a controlling
9
<PAGE> 11
stockholder, operate as an independent company. There can be no assurance that
the Company will be able to develop the operational, financial, management,
administrative and other resources or systems which were previously provided by
Odetics and which are necessary to operate as an independent company. Although
the Company and Odetics have entered into general agreements intended to
facilitate the Company's transition to an independent public company, there can
be no assurance that the Company will be able to manage this transition or to
develop these independent resources successfully. Although the Company's net
revenue has increased each year since fiscal 1993, the Company's financial
results as a subsidiary of Odetics may not be representative of what the
Company's results of operations and financial condition would have been had the
Company been a separate, standalone company during the periods presented or be
indicative of future results of operations and the financial condition of the
Company. See "Relationship Between the Company and Odetics" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
POSSIBILITY OF SUBSTANTIAL SALES OF COMMON STOCK
The Distribution, which the Company currently plans to effect prior to
December 31, 1997 (but will not in any event effect for 180 days following the
date of this Prospectus), would involve the distribution of an aggregate of
approximately 8,005,000 shares of Common Stock of the Company to the
stockholders of Odetics. Substantially all of such shares would be eligible for
immediate resale in the public market. Sales of substantial amounts of Common
Stock in the open market in anticipation of, or following, the Distribution, or
the market perception that such sales might occur, whether as a result of the
Distribution or otherwise, could materially and adversely affect the market
price of the Company's Common Stock. See "Shares Eligible for Future Sale."
RAPID TECHNOLOGICAL CHANGE
The distributed computing market and the related data storage market are
characterized by rapid technological change, frequent new product introductions
and enhancements, and evolving industry standards. This industry has been
subject to fundamental changes reflecting the migration from mainframe based
systems to distributed computing environments, the significant increase in the
amount of data generated and stored in such environments and end users'
increasing dependence on near online access to such data. The Company's ability
to remain competitive will depend in part on its ability to develop new and
enhanced automated tape libraries in a timely and cost effective manner in order
to integrate the latest technological advancements in storage media and to
accommodate changes in the evolving distributed computing networks. Since all of
the Company's products are currently based on DLT technology, any change in DLT
technology or the emergence and acceptance of any new technologies may require
the Company to incur substantial unanticipated costs to incorporate such
changes, for which there can be no assurance that the Company will be able to
complete on a timely basis, if at all. The Company's inability to incorporate
advances or fundamental changes in storage media could materially and adversely
affect the Company's business, financial condition and results of operations.
INTERNATIONAL OPERATIONS; RISKS ASSOCIATED WITH INTERNATIONAL SALES
International product sales represented approximately 28% and 18% of the
Company's pro forma net sales during fiscal 1996 and during the six month period
ended September 30, 1996, respectively. The Company maintains sales and support
offices in England, Germany and Taiwan. The Company believes that international
sales will continue to represent a significant portion of its revenues, and that
continued growth and profitability will require further expansion of its
international operations. To expand international sales successfully, the
Company must develop and manage effectively its foreign sales offices and
establish additional foreign operations, hire additional personnel and recruit
additional international VARs. These efforts will require significant management
attention and financial resources, and could materially and adversely affect the
Company's operating margins. To the extent that the Company is unable to make
these additions in a timely manner, the Company's business, operating results
and financial condition could be materially and adversely affected. The
Company's international sales are currently denominated in U.S.
10
<PAGE> 12
dollars, and an increase in the relative value of the dollar could make the
Company's products more expensive and, therefore, potentially less price
competitive in international markets. Additional risks inherent in international
business activities generally include unexpected changes in regulatory
requirements, tariffs and other trade barriers, longer accounts receivable
payment cycles, difficulties in managing and staffing international operations,
potentially adverse tax consequences including restrictions on the repatriation
of earnings, the burdens of compliance with a wide variety of foreign laws,
currency fluctuations and political and economical instability. There can be no
assurance that such factors will not have a material adverse effect on the
Company's future international sales and, consequently, the Company's business,
operating results and financial condition. Furthermore, as the Company increases
its international sales, its total revenues may also be affected to a greater
extent by seasonal fluctuations resulting from lower sales that typically occur
during the summer months in Europe and other parts of the world. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Sales and Marketing; Principal Customers."
DEPENDENCE ON PROPRIETARY TECHNOLOGY; RISKS OF INFRINGEMENT
The Company's ability to compete effectively depends in part on its ability
to develop and maintain proprietary aspects of its technology. The Company
currently holds one U.S. patent and has applications for additional patents
pending. The Company also relies on a combination of copyright, trademark, trade
secret and other intellectual property laws to protect its proprietary rights.
There can be no assurance, however, that any future patents will be granted or
that any issued patents or other intellectual property rights of the Company
will provide meaningful protection for the Company's product innovations.
Moreover, such rights may not preclude competitors from developing substantially
equivalent or superior products to the Company's products. In addition, the laws
of some foreign countries do not protect the Company's proprietary rights as
fully as do the laws of the United States. Accordingly, effective protection of
intellectual property may be unavailable or limited in certain foreign
countries. There can be no assurance that the Company's means of protecting its
proprietary rights in the United States or abroad will be adequate, or that
competition will not independently develop technologies that are similar or
superior to the Company's technology, duplicate the Company's technology, or
design around any patent of the Company.
Litigation may be necessary in the future to enforce the Company's
intellectual property rights, to determine the validity and scope of the
proprietary rights of others, or to defend the Company against claims of
infringement or invalidity by others. While the Company is not currently engaged
in any intellectual property litigation or proceedings, there can be no
assurance that it will not become so involved in the future. An adverse outcome
in such litigation or similar proceedings could subject the Company to
significant liabilities to third parties, require disputed rights to be licensed
from others or require the Company to cease marketing or using certain products,
any of which could have a material adverse effect on the Company's business,
financial condition and results of operations. If the Company is required to
obtain licenses under patents or proprietary rights of others, there can be no
assurance that any required licenses would be made available on terms acceptable
to the Company, if at all. In addition, the cost of addressing any intellectual
property litigation claim, both in legal fees and expenses and the diversion of
management resources, regardless of whether the claim is valid, could be
significant and could have a material adverse effect on the Company's results of
operations. See "Business -- Proprietary Rights."
WARRANTY EXPOSURE
The Company's products generally carry a one year warranty which includes
next day, onsite customer assistance within the United States and, in certain
circumstances, may provide longer warranties to select high volume OEMs.
Although the Company has established reserves for the estimated liability
associated with product warranties, most of the Company's products are
relatively new with limited history of warranty experience. Accordingly, it is
difficult to estimate the extent of the Company's future warranty exposure.
There can be no assurance that such reserves will be adequate, or that the
Company will not incur substantial warranty expenses in the future with respect
to its products. See "Business -- Customer Service and Support."
11
<PAGE> 13
BENEFITS OF OFFERING TO ODETICS
This Offering will provide several significant benefits to Odetics
including the establishment of a public market for the shares of Common Stock of
the Company retained by Odetics and the creation of an opportunity to accomplish
the Distribution. In addition, the Company intends to use a substantial portion
of the net proceeds from this Offering to repay intercompany indebtedness to
Odetics.
FUTURE CAPITAL REQUIREMENTS
The Company has agreed to pay to Odetics the lesser of 40% of the net
proceeds of this Offering or $10 million to reduce the Company's obligations to
Odetics (which obligations are $20.6 million as of September 30, 1996). The
Company will enter into a four year Promissory Note payable to Odetics
representing the balance of the Company's obligation to Odetics. Such note will
be payable in sixteen equal quarterly installments of principal plus accrued
interest commencing June 30, 1997. Accordingly, the Company will continue to
have limited capital resources after the Offering. The Company believes that in
order to remain competitive, it may require additional financial resources over
the next several years for working capital, research and development, and the
expansion of sales and marketing expenditures. While the Company plans to obtain
a credit facility upon consummation of this Offering, there can be no assurance
that such facility or any additional financial resources will be available on
acceptable terms, if at all. See "Principal Stockholder," "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources," "Use of Proceeds" and "Dilution."
CONTROL BY ODETICS PENDING THE DISTRIBUTION
The Company is currently a wholly owned subsidiary of Odetics, and has no
operating history as an independent public company. Following the completion of
this Offering, Odetics will own approximately 82.9% of the outstanding shares of
Common Stock (or 80.9% if the Underwriters' over-allotment option is exercised
in full) and will continue to be able to elect the entire Board of Directors and
otherwise control the management and affairs of the Company, including any
determinations with respect to acquisitions, dispositions, borrowings, issuances
of Common Stock or other securities or the declaration and payment of any
dividends on the Common Stock. Similarly, Odetics will have the power to
determine matters submitted to a vote of the Company's stockholders without the
consent of the Company's other stockholders, will have the power to prevent a
change of control of the Company, and could take other actions that might be
favorable to Odetics. Conflicts of interest may arise between the Company and
Odetics in a number of areas relating to their past and ongoing relationships,
tax and employee benefit matters, indemnity arrangements, sales or distributions
by Odetics of its remaining shares of Common Stock, and the exercise by Odetics
of its ability to control the management and affairs of the Company. Odetics has
announced that, subject to certain conditions (including the receipt of a
favorable private letter ruling from the Internal Revenue Service concerning the
tax free nature of the Distribution, for which Odetics has applied), Odetics
intends to distribute to its stockholders prior to December 31, 1997, all of the
Common Stock of the Company owned by Odetics following the Offering. No
assurance can be given, however, that such conditions will be satisfied or
waived, or that the Distribution will occur. For the Distribution to occur, the
Board of Directors of Odetics must conclude, at the time of the Distribution
that the Distribution is in the best interest of the stockholders of Odetics.
Failure to undertake the Distribution could materially and adversely affect the
market price of the Company's Common Stock. See "-- Possibility of Substantial
Sales of Common Stock," "Principal Stockholder" and "Relationship Between the
Company and Odetics."
DEPENDENCE UPON CONTINUED GROWTH IN THE DISTRIBUTED COMPUTING MARKETS
The Company's line of automated tape libraries addresses backup data
storage requirements, archiving and data warehouse functions and hierarchical
storage management, all of which are emerging applications dependent upon the
continued expansion of the distributed computing environments. There can be no
assurance that the distributed computing markets will continue to grow or that,
if they do continue to grow, the Company will be able to expand into other
markets. If the distributed computing markets fail to grow or
12
<PAGE> 14
grow more slowly than the Company currently anticipates, the Company's business,
operating results and financial condition would be materially and adversely
affected. See "Business -- Industry Background."
DEPENDENCE UPON KEY PERSONNEL; NEW MANAGEMENT PERSONNEL
The Company's future performance depends to a significant extent on its
senior management and other key employees, in particular its Chief Executive
Officer, Kevin C. Daly, Ph.D., who has more than ten years experience in the
field of data storage technologies. The loss of Dr. Daly's services would have a
material adverse effect on the Company's development and marketing efforts. The
Company's future success will also depend in large part upon its ability to
attract, retain and motivate highly skilled employees. In addition, the Company
is actively seeking to retain a successor chief financial officer. Competition
for such employees, particularly development engineers and an experienced chief
financial officer, is intense, and there can be no assurance that the Company
will be able to continue to attract and retain sufficient numbers of such highly
skilled employees. The Company's inability to attract and retain additional key
employees or the loss of one or more of its current key employees could have a
material adverse effect upon the Company's business, financial condition and
results of operations. See "Management" and "Business -- Employees."
BROAD DISCRETION OVER USE OF PROCEEDS
A significant portion of the estimated net proceeds of this Offering have
not been allocated to a particular purpose, and management's allocation
decisions concerning such net proceeds are dependent on a variety of factors,
including the Company's ability to operate as a standalone corporation and the
timing and status of new product developments. Accordingly, management will have
broad discretion in allocating the net proceeds of this Offering, and no
stockholder approval will be required for such allocations. There can be no
assurance that the proceeds will be allocated in a manner deemed acceptable by
the stockholders. See "Use of Proceeds."
ABSENCE OF DIVIDENDS
The Company has never paid cash dividends on shares of its capital stock.
The Company currently intends to retain any future earnings in its business and
does not anticipate paying any cash dividends in the foreseeable future.
Furthermore, the Company's agreement with its lender currently limits the
Company's ability to pay cash dividends. See "Dividend Policy."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this Offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that an active public market for the
Common Stock will develop or be sustained after the Offering. The initial
offering price will be determined by negotiation between the Company and the
Underwriters based upon a number of factors and may not be indicative of future
market prices. See "Underwriting" for information relating to the method of
determining the initial public offering price. The trading price of the
Company's Common Stock could be subject to wide fluctuations in response to
quarterly variations in operating results, announcements of technological
innovations or new products, applications or product enhancements by the Company
or its competitors, changes in financial estimates by securities analysts and
other events or factors. In addition, the stock market has experienced
volatility which has particularly affected the market prices of equity
securities of many high technology companies and which often has been unrelated
to the operating performance of such companies. These broad market fluctuations
may adversely affect the market price of the Company's Common Stock. See
"Underwriting."
EFFECT OF CERTAIN CHARTER PROVISIONS; ANTITAKEOVER EFFECTS OF CERTIFICATE OF
INCORPORATION; BYLAWS AND DELAWARE LAW
The Company's Board of Directors has the authority to issue up to 5,000,000
shares of Preferred Stock and to determine the price, rights, preferences,
privileges and restrictions, including voting rights of those shares without any
further vote or action by the stockholders. The rights of the holders of Common
Stock will
13
<PAGE> 15
be subject to, and may be adversely affected by, the rights of the holders of
any Preferred Stock that may be issued in the future. The issuance of Preferred
Stock could have the effect of making it more difficult for a third party to
acquire a majority of the outstanding voting stock of the Company. In addition,
the Company is subject to the antitakeover provisions of Section 203 of the
Delaware General Corporation Law, which will prohibit the Company from engaging
in a "business combination" with an "interested stockholder" for a period of
three years after the date of the transaction in which the person became an
interested stockholder, unless the business combination is approved in a
prescribed manner. The application of Section 203 also could have the effect of
delaying or preventing a change of control of the Company. Further, certain
provisions of the Company's Certificate of Incorporation and Bylaws and of
Delaware law could delay or make more difficult a merger, tender offer or proxy
contest involving the Company, which could adversely affect the market price of
the Company's Common Stock. See "Description of Securities -- Preferred Stock,"
and "-- Delaware Law."
IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price is substantially higher than the book
value per share of Common Stock. Investors participating in this Offering will
incur immediate and substantial dilution. To the extent outstanding options to
purchase Common Stock or Class B Common Stock of the Company are exercised,
there will be further dilution. See "Dilution."
FORWARD LOOKING STATEMENTS
This Prospectus contains forward looking statements within the meaning of
Section 27A of the Securities Act, and Section 21E of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), which are intended to be covered
by the safe harbors created thereby. Investors are cautioned that all forward
looking statements involve risks and uncertainty. Although the Company believes
that all assumptions underlying the forward looking statements contained herein
are reasonable, any of the assumptions could be inaccurate, and therefore, there
can be no assurance that the forward looking statements included in this
Prospectus will prove to be accurate. In light of the significant uncertainties
inherent in the forward looking statements included herein, the inclusion of
such information should not be regarded as a representation by the Company or
any other person that the objectives and plans of the Company will be achieved.
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<PAGE> 16
USE OF PROCEEDS
The principal purposes of this Offering are to create a public market for
the Company's Common Stock and raise necessary capital for the Company. The net
proceeds to the Company from the sale of the 1,650,000 shares of Common Stock
offered by the Company hereby, after deducting underwriting discounts and
commissions and estimated offering expenses, are estimated to be approximately
$16,304,500 ($18,810,850 if the over-allotment option is exercised in full).
The Company will pay to Odetics the lesser of 40% of the net proceeds of
this Offering prior to deducting estimated offering expenses or $10 million to
reduce the Company's obligations to Odetics. Such obligations, which consisted
of advances from Odetics for services and support provided to the Company and
for additional working capital, were approximately $20.6 million as of September
30, 1996. The Company will enter into a Promissory Note payable to Odetics
representing the balance of its obligations to Odetics (which is estimated to be
$13.8 million assuming an initial public offering price of $11 per share.) Such
note will accrue interest at the rate charged to Odetics from time to time by
its principal lender (8.25% as of November 30, 1996) and is payable in sixteen
equal quarterly installments of principal plus accrued interest commencing June
30, 1997. The balance of the proceeds will be used for general corporate
purposes, including the funding of working capital requirements, the repayment
of the balance due under the note to Odetics, the expansion of its sales and
marketing activities for existing products and any new products and investment
in new technologies. The Company has not yet identified the specific amount of
proceeds to be expended for the respective corporate purposes. The amounts
actually expended for each purpose may vary significantly depending on a number
of factors, including future revenue growth, if any, the amount of cash
generated or used by the Company's operations, the progress of the Company's new
product development efforts, technological advances and the status of
competitive products. Accordingly, management will have significant discretion
in the application of a substantial portion of the net proceeds from this
Offering. Pending the use thereof, the Company intends to invest the proceeds of
this Offering in short term interest bearing marketable securities.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock. The Company
currently intends to retain any earnings for future growth and, therefore, does
not anticipate paying any cash dividends in the foreseeable future. In addition,
the Company's credit agreement contains financial covenants which prohibit the
Company from paying cash dividends without its lenders' consent. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." See "Risk Factors -- Absence of
Dividends."
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<PAGE> 17
CAPITALIZATION
The following table sets forth, as of September 30, 1996, the Company's (i)
actual capitalization, (ii) pro forma capitalization after giving effect to the
purchase by the Company of the net assets (at their historical book value) of
the business division of Odetics which provides service for the Company's
product, and (iii) pro forma capitalization as adjusted to reflect the sale by
the Company of the 1,650,000 shares of Common Stock offered hereby and the
receipt by the Company of the estimated net proceeds therefrom (after deducting
the estimated underwriting discount and estimated offering expenses). The
capitalization information set forth in the table below is qualified by the more
detailed Consolidated Financial Statements and Notes thereto and Pro Forma
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Prospectus and should be read in conjunction with such financial statements and
notes.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Obligation payable to Odetics(1)........................... $18,028 $20,586 $13,834
Stockholders' equity(2):
Preferred Stock, par value $.0001 per share; 5,000,000
shares authorized; no shares issued or outstanding.... -- -- --
Common Stock, par value $.0001 per share; 45,000,000
shares authorized; 8,005,000 shares issued and
outstanding, actual; 9,655,000 shares issued and
outstanding, pro forma and as adjusted................ 1 1 1
Class B Common Stock, par value $.0001 per share,
5,000,000 shares authorized, no shares issued and
outstanding........................................... -- -- --
Additional paid-in capital............................... 1,009 1,009 17,314
Accumulated deficit...................................... (9,589) (9,589) (9,589)
------- ------- -------
Total stockholders' equity (deficit).................. (8,579) (8,579) 7,726
------- ------- -------
Total capitalization............................. $ 9,449 $12,007 $21,560
======= ======= =======
</TABLE>
- ---------------
(1) Represents intercompany payables to Odetics. In December 1996, the Company
executed a four year promissory note payable to Odetics to memorialize this
obligation. Upon consummation of this Offering, the Company will pay to
Odetics the lesser of 40% of the net proceeds of this Offering before
deducting estimated offering expenses or $10 million to reduce the
outstanding balance of the Odetics Note. See "Use of Proceeds."
(2) On December 19, 1996, the Company was reincorporated in Delaware and in
connection therewith, the Company (a) established two classes of common
stock, the Common Stock and Class B Common Stock, (b) increased its
authorized common stock to 50,000,000 shares from 10,000 shares (45,000,000
shares of Common Stock and 5,000,000 shares of Class B Common Stock), (c)
effected a 8,005-for-1 stock split on its Common Stock, and (d) authorized a
new class of stock consisting of 5,000,000 shares of Preferred Stock.
Stockholders' equity excludes options to purchase up to 2,000,000 shares of
Class B Common Stock which have been reserved for issuance under the 1996
Stock Incentive Plan, of which 879,000 options were granted thereunder in
December 1996 at a weighted average exercise price of $5.00 per share.
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<PAGE> 18
DILUTION
The deficit in net tangible book value of the Company as of September 30,
1996 was $8.6 million, or $1.07 per share. "Net tangible book value per share"
represents the amount of the Company's total tangible assets less total
liabilities, divided by the number of shares of Common Stock outstanding. After
giving effect to the receipt by the Company of the net proceeds from the sale of
the shares of Common Stock offered hereby and the application of the estimated
net proceeds therefrom, after deducting the underwriting discount and estimated
offering expenses, the net tangible book value of the Company as of September
30, 1996 would have been $7.7 million, or $.80 per share. This represents an
immediate increase in net tangible book value of $1.87 per share to the existing
stockholder and an immediate dilution of $10.20 per share to new investors. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share............................ $11.00
Deficit in net tangible book value per share before this
Offering...................................................... $(1.07)
Increase per share attributable to new investors................. 1.87
------
Net tangible book value per share after this Offering.............. .80
------
Dilution per share to new investors................................ $10.20
======
</TABLE>
The following table summarizes, as of September 30, 1996, the differences
between Odetics and new investors (before deducting underwriting discounts and
commissions and estimated offering expenses) with respect to the number of
shares of Common Stock purchased from the Company, the total consideration paid
and the average price per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Odetics............................. 8,005,000 82.9% $ 1,010,000 5.3% $ .13
New Investors....................... 1,650,000 17.1 18,150,000 94.7 $ 11.00
--------- ----- ---------- -----
Total..................... 9,655,000 100.0% $19,160,000 100.0%
========= ===== ========== =====
</TABLE>
The computations in the tables set forth above exclude options to purchase
an aggregate of 879,000 shares of Class B Common Stock outstanding as of
December 19, 1996 under the 1996 Stock Incentive Plan at a weighted average
exercise price of $5.00 per share.
17
<PAGE> 19
PRO FORMA SELECTED CONSOLIDATED FINANCIAL DATA
The following pro forma selected consolidated financial data for the year
ended March 31, 1996 and for the six months ended September 30, 1996 has been
derived from the unaudited pro forma financial statements of the Company
included elsewhere in this Prospectus. The following pro forma selected
consolidated financial data for the years ended March 31, 1992, 1993, 1994 and
1995 and six months ended September 30, 1995 has been derived from unaudited pro
forma consolidated financial statements of the Company not appearing in this
Prospectus. Effective July 1, 1996, the Company assumed responsibility for the
sale of its products in Europe by establishing ATL Products Limited ("APL"), a
wholly owned European sales subsidiary, and effective December 31, 1996 expects
to acquire, at book value, the net assets of ATL Customer Service ("ACS"), a
subdivision of Odetics, Inc. which provides worldwide service and support for
the Company's products. The pro forma information gives effect to (i) the
Company's formation of APL at the beginning of each period presented and the
processing of all European sales through APL, rather than through Odetics Europe
Ltd. ("OEL"), a subsidiary of Odetics and (ii) the purchase of ATL Customer
Service ("ACS") as if such purchase had occurred at the beginning of each period
presented. Information for European sales of the Company's products and related
expenses has been derived from the unaudited financial statements of OEL;
information for worldwide service and support revenues for the Company's
products and related expenses has been derived from the unaudited financial
statements of ACS. The pro forma adjustments necessary to present fairly the
Company's pro forma results of operations are based on available information and
certain assumptions considered reasonable in the circumstances and include
adjustments to eliminate intercompany sales and profits and to provide
additional interest expense on assumed increased payable to Odetics balances
that result from the employment of additional net assets in the business on a
pro forma basis. THE UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
DATA SET FORTH BELOW IS NOT NECESSARILY INDICATIVE OF ACTUAL OPERATING RESULTS
THAT WOULD HAVE OCCURRED HAD THE TRANSACTIONS OCCURRED AS OF THE BEGINNING OF
THE PERIODS PRESENTED, NOR DO THEY PURPORT TO INDICATE THE CONSOLIDATED RESULTS
OF OPERATIONS FOR ANY FUTURE PERIOD. The following pro forma selected
consolidated statements of operations data should be read in conjunction with
"Pro Forma Selected Consolidated Financial Data", "Management's Discussion and
Analysis of Financial Condition and Results of Operations", the consolidated
financial statements and notes thereto, and "Unaudited Pro Forma Consolidated
Financial Information" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
--------------------------------------------------- ------------------
1992 1993 1994 1995 1996 1995 1996
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Net sales............................ $ 7,849 $ 9,936 $20,506 $22,992 $29,410 $ 9,013 $27,040
Cost of sales........................ 5,536 8,313 15,717 16,695 18,861 6,266 16,140
------- ------- ------- ------- ------- ------- -------
Gross profit......................... 2,313 1,623 4,789 6,297 10,549 2,747 10,900
Expenses:
Research and development........... 1,607 1,654 2,285 3,248 1,731 867 1,695
Sales and marketing................ 394 711 1,308 2,274 3,718 1,258 2,829
General and administrative......... 750 951 1,195 1,389 1,414 686 863
Charges allocated by parent........ 874 1,582 1,354 1,563 1,535 741 736
Nonrecurring charge................ -- -- -- 4,042 1,392 457 --
------- ------- ------- ------- ------- ------- -------
Income (loss) from operations........ (1,312) (3,275) (1,353) (6,219) 759 (1,262) 4,777
Interest charges allocated by
parent............................. -- -- 542 1,243 1,860 895 929
------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes.... (1,312) (3,275) (1,895) (7,462) (1,101) (2,157) 3,848
Income taxes......................... -- -- -- -- 139 -- 1,539
------- ------- ------- ------- ------- ------- -------
Net income (loss).................... $(1,312) $(3,275) $(1,895) $(7,462) $(1,240) $(2,157) $ 2,309
======= ======= ======= ======= ======= ======= =======
Net income (loss) per share.......... (.15) .27
======= =======
Shares used in computation of income
(loss) per share................... 8,484 8,484
======= =======
</TABLE>
18
<PAGE> 20
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data as of March 31, 1995 and
1996 and for each of the years ended March 31, 1994, 1995 and 1996 has been
derived from the consolidated financial statements of the Company audited by
Ernst & Young LLP, independent auditors, included elsewhere herein. Selected
consolidated financial data as of March 31, 1992, 1993 and 1994 and for each of
the years ended March 31, 1992 and 1993 has been derived from the Company's
unaudited consolidated financial statements not included herein. The selected
consolidated financial data for the six months ended September 30, 1995 and 1996
has been derived from the Company's unaudited consolidated financial statements
for such periods included elsewhere in this Prospectus. In the opinion of
management, such unaudited consolidated financial statements contain all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results for such periods. The consolidated results of
operations for the six month period ended September 30, 1996 are not necessarily
indicative of the results to be expected for the full fiscal year ending March
31, 1997 or any future period. The following data should be read in conjunction
with "Pro Forma Selected Consolidated Results of Operations", "Management's
Discussion and Analysis of Financial Condition and Results of Operations", the
consolidated financial statements and notes thereto, and "Unaudited Pro Forma
Consolidated Financial Information" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
------------------------------------------------ -------------------
1992 1993 1994 1995 1996 1995 1996
------- ------- ------- ------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Net sales:
Net product sales.................... $ 3,579 $ 5,592 $15,534 $15,445 $ 18,076 $ 5,187 $ 22,183
Sales to affiliates.................. -- -- 655 3,074 5,860 1,721 1,466
------- ------- ------- -------- -------- -------- --------
Total net sales........................ 3,579 5,592 16,189 18,519 23,936 6,908 23,649
------- ------- ------- -------- -------- -------- --------
Gross profit:
Product sales........................ 635 34 3,136 2,906 5,871 1,367 8,189
Affiliate sales...................... -- -- 249 1,190 1,864 564 492
------- ------- ------- -------- -------- -------- --------
Total gross profit..................... 635 34 3,385 4,096 7,735 1,931 8,681
Expenses:
Research and development............. 1,606 1,654 2,285 3,248 1,731 867 1,695
Sales and marketing.................. 394 711 1,308 1,838 2,648 811 2,515
General and administrative........... 261 471 621 701 677 306 546
Charges allocated by parent.......... 515 1,241 991 1,061 933 472 551
Nonrecurring charge.................. -- -- -- 3,513 1,392 457 --
------- ------- ------- -------- -------- -------- --------
Income (loss) from operations.......... (2,141) (4,043) (1,820) (6,265) 354 (982) 3,374
Interest charges allocated by parent... -- -- 391 1,025 1,629 780 817
------- ------- ------- -------- -------- -------- --------
Income (loss) before income taxes...... (2,141) (4,043) (2,211) (7,290) (1,275) (1,762) 2,557
Income taxes........................... -- -- -- -- -- -- 1,023
------- ------- ------- -------- -------- -------- --------
Net income (loss)...................... $(2,141) $(4,043) $(2,211) $(7,290) $ (1,275) $ (1,762) $ 1,534
======= ======= ======= ======== ======== ======== ========
Net income (loss) per share............ (.25) (.48) (.26) (.86) (.15) (.21) .18
======= ======= ======= ======== ======== ======== ========
Shares used in computation of income
(loss) per share..................... 8,484 8,484 8,484 8,484 8,484 8,484 8,484
======= ======= ======= ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF MARCH 31, SEPTEMBER 30,
------------------------------------------------ -------------------
1992 1993 1994 1995 1996 1995 1996
------- ------- ------- ------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital deficit................ $ (461) $ (71) $(2,846) $(9,990) $(11,313) $(11,627) $(10,263)
Total assets........................... 3,610 5,654 10,694 9,139 15,288 10,596 15,945
Total liabilities...................... 5,751 4,991 12,213 17,977 25,401 21,196 24,524
Total stockholders' equity (deficit)... (2,141) 663 (1,548) (8,838) (10,113) (10,600) (8,579)
</TABLE>
19
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and Notes thereto and the Unaudited Pro
Forma Consolidated Financial Statements and Notes thereto contained elsewhere in
this Prospectus. This Prospectus contains forward looking statements that
involve a number of risks and uncertainties including, without limitation, those
set forth in "Risk Factors." The Company's actual results may differ materially
from any future performance discussed in the forward looking statements and in
this Management's Discussion and Analysis of Financial Condition and Results of
Operations.
OVERVIEW
The ATL Products business was established in 1990 as a division of Odetics
to use its technical expertise in information automation technology to develop
automated tape libraries that replace the manual storage and retrieval of
computer tapes. Initially, the Company teamed with E-Systems, Inc. to develop
and provide a 19 mm automated tape cartridge handling subsystem which the
Company introduced in 1992. In 1992, the Company also introduced automated tape
handling products for systems employing IBM 3480 and similar industry standard
tape cartridges. In 1994, the Company introduced the ATL 2640, its first
automated tape library designed for distributed computing environments, based on
the DLT format. The Company extended its line of DLT based automated tape
libraries in 1995 by introducing its 520 Series, designed for smaller libraries
in the midrange and Unix client/server environments, applications which
historically required less storage capacity and less formal data processing. In
November 1996, the Company announced the introduction of its ATL 7100 tape
library series, which was designed for enterprise system administrators who
require multiple terabyte backup and archiving. Prior to fiscal 1995, the
Company's sales, primarily consisted of 19 mm and 3480 tape libraries, and
experienced modest growth to approximately $16.2 million in fiscal 1994. In
fiscal 1995, sales of these products declined significantly, but the rapid
increase in DLT product sales resulted in a small net sales growth from the
prior year. Since 1995, the rapid increase in DLT product sales has led to
significant quarter-to-quarter revenue growth. All of the Company's net sales
are currently derived from DLT based automated tape libraries.
The Company's historical consolidated financial statements discussed below
reflect the Company's results of operations during periods when it was operated
not as a standalone entity but as either a division or wholly owned subsidiary
of Odetics. Such financial information does not necessarily reflect the results
of operations, of the Company that may have been achieved had the Company been a
separate, standalone entity during the periods presented, or the results of
operations, which may be achieved in the future. In particular, a portion of the
Company's historical revenues consisted of sales of systems and spare parts to
other divisions of Odetics for resale in Europe and for worldwide service
activities conducted on behalf of the Company by Odetics. These systems and
parts were historically sold at low intercompany prices established by agreement
between the Company and Odetics. Effective July 1, 1996, the Company assumed
responsibility for international sales by establishing its own wholly owned
subsidiary, and from that date the Company's sales to international customers
are included in net sales. Effective December 31, 1996, the Company will
acquire, at book value, that portion of the business of Odetics which provided
worldwide service and support for the Company's products. Following that date,
all customer service activities for the Company's products will be performed by
the Company, and the resulting revenues, costs and expenses will be included in
the Company's operating results. In order to present information for all periods
on a more comparable basis to provide a more representative view of the
Company's operating results, and as if the Company had operated on a standalone
basis in all periods, the Company includes, in addition to historical
information, the Company's pro forma consolidated financial information as if
all sales and operations relating to its products had been made by the Company
in all periods. The pro forma information includes higher levels of net sales
and operating expenses reflecting sales made through Odetics and its
subsidiaries.
The Company's pro forma operating expenses have increased significantly in
recent periods, since the introduction of the Company's DLT based product lines,
as the Company has expended resources to support growth in the volume of DLT
product sales. The Company expects to incur certain expenses in the quarter
20
<PAGE> 22
ended March 31, 1997 in connection with the relocation of the Company's
facilities. The Company also expects operating expenses to increase as the
Company continues to build its management and information systems and other
infrastructure to support recent growth and any additional growth in the future
and to increase its administrative staff to perform many services previously
performed by Odetics, including public company reporting requirements.
Accordingly, neither historical nor pro forma overhead expense included herein
is necessarily indicative of the expense which may be incurred by the Company in
future periods.
Odetics and the Company have entered into certain agreements providing for
the Distribution and governing various interim and continuing relationships
between the companies, including (i) a Separation and Distribution Agreement
which sets forth the principal corporate transactions required to effect the
Separation, the Offering and the Distribution, (ii) a Tax Allocation Agreement
which will govern the allocation of tax liabilities between the Company and
Odetics, and (iii) a Services Agreement, pursuant to which Odetics will continue
for an interim period following the Offering and the Distribution to perform
certain financial, management information and other services for the Company.
See "Relationship Between the Company and Odetics." The Company anticipates that
charges paid to Odetics pursuant to the Services Agreement will decline in
future periods, as the Company begins to build its own infrastructure and to
incur directly expenses that otherwise would have been included in charges
allocated by Odetics.
RESULTS OF OPERATIONS
The following tables set forth for the periods indicated, the percentages
of historical and pro forma net sales represented by each item in the Company's
statement of operations.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEARS ENDED MARCH 31, SEPTEMBER 30,
--------------------------------------------- ---------------
1992 1993 1994 1995 1996 1995 1996
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
PRO FORMA RESULTS:
Net sales................................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............................... 70.5 83.7 76.7 72.6 64.1 69.5 59.7
----- ----- ----- ----- ----- ----- -----
Gross profit................................ 29.5 16.3 23.3 27.4 35.9 30.5 40.3
Expenses:
Research and development.................. 20.5 16.6 11.1 14.1 5.9 9.6 6.2
Sales and marketing....................... 5.0 7.2 6.4 9.9 12.7 14.0 10.5
General and administrative................ 9.6 9.6 5.8 6.1 4.8 7.6 3.2
Charges allocated by parent............... 11.1 15.9 6.6 6.8 5.2 8.2 2.7
Nonrecurring charge....................... -- -- -- 17.6 4.7 5.1 --
----- ----- ----- ----- ----- ----- -----
Income (loss) from operations............... (16.7) (33.0) (6.6) (27.1) 2.6 (14.0) 17.7
Interest charges allocated by parent........ -- -- 2.6 5.4 6.3 9.9 3.5
----- ----- ----- ----- ----- ----- -----
Income (loss) before income taxes........... (16.7) (33.0) (9.2) (32.5) (3.7) (23.9) 14.2
Income taxes................................ -- -- -- -- .5 -- 5.7
----- ----- ----- ----- ----- ----- -----
Net income (loss)........................... (16.7)% (33.0)% (9.2)% (32.5)% (4.2)% (23.9)% 8.5%
===== ===== ===== ===== ===== ===== =====
</TABLE>
21
<PAGE> 23
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEARS ENDED MARCH 31, SEPTEMBER 30,
--------------------------------------------- ---------------
1992 1993 1994 1995 1996 1995 1996
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL RESULTS:
Net sales:
Net product sales......................... 100.0% 100.0% 96.0% 83.4% 75.5% 75.1% 93.8%
Sales to affiliates....................... -- -- 4.0 16.6 24.5 24.9 6.2
----- ----- ----- ----- ----- ----- -----
Total net sales............................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Gross profit:
Product sales............................. 17.7 0.6 20.2 18.8 32.5 26.4 36.9
Affiliate sales........................... -- -- 38.0 38.7 31.8 32.8 33.6
----- ----- ----- ----- ----- ----- -----
Total gross profit.......................... 17.7 0.6 20.9 22.1 32.3 27.9 36.7
Expenses:
Research and development.................. 44.8 29.6 14.1 17.6 7.2 12.6 7.2
Sales and marketing....................... 11.0 12.7 8.1 9.9 11.1 11.7 10.6
General and administrative................ 7.3 8.4 3.8 3.8 2.8 4.4 2.3
Charges allocated by parent .............. 14.4 22.2 6.1 5.7 3.9 6.8 2.3
Nonrecurring charge....................... -- -- -- 19.0 5.8 6.6 --
----- ----- ----- ----- ----- ----- -----
Income (loss) from operations............... (59.8) (72.3) (11.2) (33.9) 1.5 (14.2) 14.3
Interest charges allocated by parent........ -- -- 2.4 5.5 6.8 11.3 3.5
----- ----- ----- ----- ----- ----- -----
Income (loss) before income taxes........... (59.8) (72.3) (13.6) (39.4) (5.3) (25.5) 10.8
Income taxes................................ -- -- -- -- -- -- 4.3
----- ----- ----- ----- ----- ----- -----
Net income (loss)........................... (59.8)% (72.3)% (13.6)% (39.4)% (5.3)% (25.5)% 6.5%
===== ===== ===== ===== ===== ===== =====
</TABLE>
Net Sales. Pro forma net sales increased 200% to $27.0 million for the six
month period ended September 30, 1996, as compared to pro forma net sales of
$9.0 million for the comparable six month period in fiscal 1996. Pro forma net
sales increased 27.9% to $29.4 million for the fiscal year ended March 31, 1996
from $23.0 million in fiscal 1995, and increased 12.1% in fiscal 1995 from $20.5
million in fiscal 1994. The increases in net sales for the six month period
ended September 30, 1996 and for fiscal 1996 reflect increasing market
acceptance of the Company's DLT-based products, offset in part by declines in
sales of pre-DLT products. Sales and support of DLT based products increased
from 6% of sales in fiscal 1994 to 56% of sales in fiscal 1995, and 99% of net
sales for each of fiscal 1996 and the first six months of fiscal 1997. The
slight increase in pro forma net sales in fiscal 1995 as compared to fiscal 1994
primarily reflected higher service revenues relating to sales of discontinued 19
mm format product spare parts to E-Systems, a former major OEM customer of the
Company, offset in part by declining sales of pre-DLT products.
Pro forma service revenue constituted 11% of pro forma net sales for the
six months ended September 30, 1996 as compared to 21% for the comparable period
in fiscal 1995, and declined to 16% of pro forma net sales in fiscal 1996 from
29% and 24% in fiscal years 1995 and 1994, respectively. Service revenue in
fiscal 1995 reflected a large nonrecurring purchase of spare parts by a major
OEM customer, under a program which has since been discontinued. Service
revenues have otherwise remained relatively flat over the periods reported, and
have declined as a percentage of pro forma net sales because of increasing sales
during those periods. The Company anticipates that service revenue in future
periods will increase modestly as the twelve month warranty on increasing sales
of DLT based products begin to decline and customers begin to acquire service
contracts.
Pro forma international sales represented 28% and 18% of total net sales
for fiscal 1996 and the six months ended September 30, 1996. Pro forma net sales
include international sales at full fair market value.
Historical net sales reflect the same trends as pro forma net sales, but
were at lower levels as a result of the sale of products to Odetics for resale
overseas at the low intercompany prices. The Company has assumed responsibility
for international sales effective July 1, 1996, and will assume responsibility
for all service activities effective December 31, 1996.
22
<PAGE> 24
Gross Profit. Pro forma gross profit as a percentage of pro forma net
sales increased to 40.3% for the six months ended September 30, 1996 from 30.5%
for the comparable period in fiscal 1996 and increased to 35.9% in fiscal 1996
from 27.4% in fiscal 1995 and 23.3% in fiscal 1994. The increases during the
interim periods and in fiscal 1996 were primarily due to improved absorption of
manufacturing overhead resulting from continued increases in sales of DLT based
products, as well as reductions in the costs of materials for the Company's DLT
products. The increased gross margin in fiscal 1995 over fiscal 1994 was
primarily due to a higher level of service revenues in fiscal 1995 relating to
sales of discontinued 19mm format product spare parts to a former major OEM
customer of the Company, which typically generate higher margins. Gross profit
margin in fiscal 1995 also reflected to a lesser extent improved margins on the
Company's first DLT based library products, as compared to margins on declining
sales of the prior generation of pre-DLT products. Average sales prices have
declined slightly during fiscal 1996 and the interim period as a result of
increased competition, but these declines have been offset by manufacturing
efficiencies attributable to higher sales volumes and other cost reductions. The
Company expects average selling prices will continue to decline in the future as
a result of increased competition, and there can be no assurance that the
Company will be able to offset these declines through improved manufacturing
efficiencies or otherwise.
Historical gross profit margins increased to 36.7% in the six months ended
September 30, 1996 from 27.9% in the comparable period in fiscal 1996, and were
32.3%, 22.1% and 20.9% for the years ended March 31, 1996, 1995 and 1994,
respectively. Historical gross profit margins generally are less than the pro
forma gross margins for comparable periods since they do not include gross
profit earned by affiliates on sales of the Company's products in international
markets and on service revenues and sales of spare parts. Prior to the Company
assuming responsibility for European sales and for all service activities in
fiscal 1997, the Company's gross profits on sales to affiliates were determined
by agreement.
Research and Development. For the six month period ended September 30,
1996, pro forma research and development expense increased to $1.7 million, or
6.2% of pro forma net sales, from $867,000, or 9.6% of pro forma net sales, for
the comparable six month period of fiscal 1996. Pro forma research and
development expense decreased 46.7% to $1.7 million in fiscal 1996 (or 5.9% of
pro forma net sales) from $3.2 million in fiscal 1995 (or 14.1% of pro forma net
sales), and increased 42.1% from $2.3 million (or 11.1% of pro forma net sales)
in fiscal 1994. The interim period increase was primarily due to development
costs, including development, testing and preproduction manufacturing, incurred
in connection with development of the Company's ATL 7100 and Prism products and
the incorporation of Quantum's new DLT7000 tape drives into the Company's
current products. The decline of research and development expense in fiscal
1996, in both absolute dollars and as a percentage of sales, reflected the
completion during fiscal 1995 of the development cycle for the Company's 2640
and 520 series libraries. The increase in research and development expense in
fiscal 1995 as compared to fiscal 1994 related to increased engineering labor
and related costs, consulting and prototype materials costs incurred in the
development of the Company's 2640 and 520 Series of DLT based tape libraries.
Management expects the Company's expenditures for research and development
generally to increase over time and to be higher during periods of new product
development, when significant research and development expenditures are incurred
in preproduction manufacturing and testing. Such expenditures may, therefore,
fluctuate as a percentage of sales from period to period.
All research and development is conducted by the Company. Accordingly, no
difference exists between pro forma and historical research and development
expense.
Sales and Marketing. Pro forma sales and marketing expense increased 125%
to $2.8 million (or 10.5% of pro forma net sales) for the six month period ended
September 30, 1996 from $1.3 million (or 14.0% of pro forma net sales) for the
comparable six month period in fiscal 1996. Pro forma sales and marketing
expense increased 63.5% to $3.7 million in the year ended March 31, 1996 (or
12.7% of pro forma net sales) as compared to $2.3 million (or 9.9% of pro forma
net sales) in fiscal 1995, and increased 73.9% from $1.3 million (or 6.4% of pro
forma net sales) in fiscal 1994. The interim period increase was primarily due
to the Company's efforts to expand its sales and marketing resources, including
increased expenditures for advertising, promotion and trade show participation.
Such expenses decreased as a percentage of pro forma net sales due to the 200%
increase in pro forma net sales that occurred during the period. The increase in
fiscal 1996 was primarily due to increased expenses for payroll and related
costs incurred in the expansion of the
23
<PAGE> 25
Company's marketing activity, including advertising and promotion as well as
higher sales commissions associated with higher sales. The increase in fiscal
1995 was primarily due to the expansion of the Company's sales organization and
increased advertising and promotion expenditures accompanying the introduction
of the Company's first DLT based products.
Historical sales and marketing expense has generally increased in both
amount and as a percentage of net sales across all periods, except for the six
month period ended September 30, 1996, when sales and marketing expense
increased in absolute dollars but declined to 10.5% of net sales from 14% during
the same period of fiscal 1996. This decline was primarily attributable to the
significant increase in net sales between the two interim periods. Increases
across other periods reflect growth in sales and marketing personnel, increased
marketing and promotional activity in support of new product introductions, and
higher sales commissions.
General and Administrative. Pro forma general and administrative expense
increased 25.8% to $863,000 (or 3.2% of pro forma net sales) for the six month
period ended September 30, 1996 from $686,000 (or 7.6% of pro forma net sales)
for the comparable six month period in fiscal 1996 . For the year ended March
31, 1996, pro forma general and administrative expense was $1.4 million (or 4.8%
of pro forma net sales) which was substantially unchanged as compared to fiscal
1995, and pro forma general and administrative expense increased 16.2% in fiscal
1995 (or 6.1% of pro forma net sales) from $1.2 million (or 5.8% of pro forma
net sales) in fiscal 1994. The increases in all periods presented reflect the
addition of administrative infrastructure to support increased sales volume.
Historical general and administrative expense does not include general and
administrative expenses incurred by affiliates but reflects the same trends and
underlying factors. Pro forma and historical general and administrative expense
do not reflect all general and administrative expenses which the Company expects
to incur as a standalone entity since certain corporate general and
administrative functions have been performed for the Company by Odetics, and the
cost thereof has been included in Charges Allocated by Parent.
Charges Allocated by Parent. Odetics performs certain corporate general
and administrative functions and charges the Company a pro rata portion of the
costs Odetics incurs for such services. Pro forma charges allocated by parent
were relatively flat during the three year period ended March 31, 1996 and the
interim period ended September 30, 1996. Charges allocated by parent remained
relatively constant during these periods because the Company directly incurred
most of the increases in administrative infrastructure necessary to support the
growth of its business.
Historical charges allocated by parent also remained relatively constant in
amount over the periods presented, as the Company began to establish a more
nearly independent infrastructure and to incur the related expenses directly.
Nonrecurring Charge. Pro forma nonrecurring charges were $1.4 million and
$4.0 million in the years ended March 31, 1996 and 1995, respectively. The
fiscal 1996 expense was comprised of legal expenses incurred in connection with
litigation with E-Systems, which was settled in May 1996. The charges in fiscal
1995 related to asset write downs, severance costs related to staffing
reductions and legal fees incurred in this litigation. The historical
nonrecurring charge in fiscal 1995 excludes a $529,000 inventory write down
recognized by Odetics for spare parts related to products sold to E-Systems, but
otherwise does not materially differ from pro forma amounts in fiscal 1995 or
fiscal 1996.
Interest Charges Allocated by Parent. Odetics has historically advanced
funds to meet the Company's capital requirements and has charged the Company
interest expense on the resulting intercompany account balance determined using
Odetics' cost of the related borrowed funds. Pro forma interest charges by
parent increased 3.8% to $929,000 for the six month period ended September 30,
1996 from $895,000 for the comparable six month period in fiscal 1996. Pro forma
interest charges by parent increased 49.6% to $1.9 million in the year ended
March 31, 1996 as compared to $1.2 million in fiscal 1995, and increased 129%
from $542,000 in fiscal 1994. The increase in pro forma interest charges by
parent in all periods reflects increased intercompany borrowings necessary to
support the Company's working capital requirements and operations.
24
<PAGE> 26
Historical interest charges allocated by parent does not reflect the pro
forma adjustment for the allocation of interest charges by Odetics representing
the increase in the intercompany obligations due to the Company's planned
acquisition of the service business of Odetics.
Income Taxes. The Company is included in the consolidated federal tax
return of Odetics. Members of the consolidated group that generate taxable
losses are not allocated any tax benefit for such losses if the consolidated
group as a whole is profitable. Accordingly, for periods prior to April 1, 1996,
during which the Company incurred losses, the Company had no pro forma domestic
income tax provision or benefit. In addition, because the Company's losses have
been used to offset Odetics' taxable income in the consolidated federal tax
returns, the Company has no loss carryforward available to offset future taxable
income. The 1994, 1995 and 1996 pro forma provision for income taxes reflects
United Kingdom income taxes at an effective rate of 33% of income from European
sales of the Company's products and includes $53,000 incurred by the service
business of Odetics which will be acquired by the Company.
For periods subsequent to April 1, 1996, the Company has entered into a Tax
Allocation Agreement with Odetics pursuant to which the Company will make a
payment to Odetics, or Odetics will make a payment to the Company, as
appropriate, in an amount in respect of the taxes shown as due attributable to
the operations of the Company on the consolidated federal income tax return
filed by Odetics for the short period commencing on April 1, 1997 and ending on
the date which the Company ceases to be a member of the Odetics consolidated
group. The Company expects to report taxable income in fiscal 1997 and has
provided pro forma income taxes at an estimated effective tax rate of 40% for
the six month period ended September 30, 1996.
The provision for income taxes for historical income has been provided at
an estimated effective tax rate of 40% of historical pretax income only for the
six month period ended September 30, 1996. As discussed above, losses in prior
periods did not receive any tax benefit under the Company's tax allocation
agreement with Odetics, and the Company has no loss carryforward available to
offset future taxable income.
25
<PAGE> 27
QUARTERLY RESULTS
The following tables present selected quarterly financial information for
each of the six quarters through September 30, 1996 and the percentage
relationship of certain items to net sales for the respective periods. This
information is unaudited, but in the opinion of the Company's management,
reflects all adjustments, consisting only of normal recurring adjustments, that
the Company considers necessary for a fair presentation of this information in
accordance with generally accepted accounting principles. Such quarterly results
are not necessarily indicative of future results of operations.
<TABLE>
<CAPTION>
QUARTERS ENDED
------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1995 1995 1995 1996 1996 1996
-------- --------- -------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
PRO FORMA SUMMARY OF OPERATIONS DATA:
Net sales.............................. $ 3,364 $ 5,649 $8,558 $11,839 $ 12,777 $ 14,263
Gross profit........................... 1,115 1,632 2,863 4,939 4,926 5,974
Income (loss) before taxes............. (1,086) (1,071) (191) 1,247 1,552 2,296
Net income (loss)...................... (1,086) (1,071) (265) 1,182 931 1,378
HISTORICAL CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net sales:
Net product sales.................... $ 1,532 $ 3,656 $4,560 $ 8,328 $ 9,414 $ 12,769
Sales to affiliates.................. 860 861 2,143 1,996 1,466 --
------- ------- ------ ------- ------- -------
Total net sales........................ 2,392 4,517 6,703 10,324 10,880 12,769
Gross Profit:
Product sales........................ 439 928 1,231 3,273 3,430 4,759
Affiliate sales...................... 286 278 661 639 492 --
------- ------- ------ ------- ------- -------
Total gross profit..................... 725 1,206 1,892 3,912 3,922 4,759
Expenses:
Research and development............. 448 419 408 456 585 1,110
Sales and marketing.................. 354 457 711 1,126 1,232 1,283
General and administrative........... 137 169 172 199 221 325
Charges allocated by parent.......... 226 246 203 258 284 267
Nonrecurring charge.................. 62 395 416 519 -- --
------- ------- ------ ------- ------- -------
Income (loss) from operations.......... (502) (480) (18) 1,354 1,600 1,774
Interest charges allocated by parent... 382 398 425 424 431 386
------- ------- ------ ------- ------- -------
Income (loss) before income taxes...... (884) (878) (443) 930 1,169 1,388
Income taxes........................... -- -- -- -- 468 555
------- ------- ------ ------- ------- -------
Net income (loss)...................... $ (884) $ (878) $ (443) $ 930 $ 701 $ 833
======= ======= ====== ======= ======= =======
</TABLE>
26
<PAGE> 28
<TABLE>
<CAPTION>
QUARTERS ENDED
------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1995 1995 1995 1996 1996 1996
-------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
PRO FORMA SUMMARY OF OPERATIONS DATA:
Net sales................................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit............................. 33.1 28.9 33.5 41.7 38.6 41.9
Income (loss) before taxes............... (32.3) (19.0) (2.2) 10.5 12.1 16.1
Net income (loss)........................ (32.3) (19.0) (3.1) 10.0 7.3 9.7
HISTORICAL CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net sales:
Net product sales...................... 64.0% 80.9% 68.0% 80.7% 86.5% 100.0%
Sales to affiliates.................... 36.0 19.1 32.0 19.3 13.5 --
----- ----- ----- ----- ----- -----
Total net sales.......................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit:
Product sales.......................... 28.7 25.4 27.0 39.3 36.4 37.3
Affiliate sales........................ 33.3 32.3 30.8 32.0 33.6 --
----- ----- ----- ----- ----- -----
30.3 26.7 28.2 37.9 36.0 37.3
Expenses:
Research and development............... 18.7 9.3 6.1 4.4 5.4 8.7
Sales and marketing.................... 14.8 10.1 10.6 10.9 11.3 10.1
General and administrative............. 5.7 3.7 2.6 1.9 2.0 2.6
Charges allocated by parent............ 9.5 5.5 3.0 2.5 2.6 2.0
Nonrecurring charge.................... 2.6 8.7 6.2 5.1 -- --
----- ----- ----- ----- ----- -----
Income (loss) from operations............ (21.0) (10.6) .3 13.1 14.7 13.9
Interest charges allocated by parent..... 16.0 8.8 6.3 4.1 4.0 3.0
----- ----- ----- ----- ----- -----
Income (loss) before income taxes........ (37.0) (19.4) (6.6) 9.0 10.7 10.9
Income taxes............................. -- -- -- -- 4.3 4.4
----- ----- ----- ----- ----- -----
Net income (loss)........................ (37.0)% (19.4)% (6.6)% 9.0% 6.4% 6.5%
===== ===== ===== ===== ===== =====
</TABLE>
Pro forma net sales have increased for each of the last seven quarters
(ended September 30, 1996), reflecting higher unit sales quarter to quarter due
to increasing market acceptance of the Company's DLT based automated tape
libraries. Increases in pro forma gross profit across the periods presented
generally reflects manufacturing efficiencies associated with higher sales
volume, as well as cost reductions in certain materials included in the
Company's DLT product line. Gross profit as a percentage of net sales during the
quarters ended March 31, 1996 and September 30, 1996, were higher than in other
periods primarily as a result of rapid acceleration of unit sales and lagging
growth in infrastructure in the quarter ended March 31, 1996, and a nonrecurring
adjustment to inventory reserves during the quarter ended September 30, 1996.
Operating expenses also increased sequentially across the quarters presented,
commensurately with increases in net sales. Research and development expense
tends to fluctuate significantly across periods, depending upon the Company's
product development cycles. Such expenses increased significantly in the quarter
ended September 30, 1996 reflecting preproduction costs and quality and
reliability testing for the Company's new 7100 Series of automated tape
libraries, continuing research and development dedicated to products
incorporating the Prism architecture expected to be commercially released in
calendar 1997, as well as the integration of the new DLT7000 tape drive into the
Company's existing products. This level of research and development expenditure
is expected to continue for at least several quarters due to new product
development activity.
27
<PAGE> 29
BACKLOG
The Company builds product to order rather than to forecast, but has
achieved a relatively short manufacturing cycle. Accordingly, the Company's net
sales during any period are substantially dependent on orders booked and shipped
during that period. The Company includes in its backlog those customer orders
for which it has received orders and for which shipment is scheduled within the
next twelve months; however most orders are filled within 90 days. In general,
all purchase orders are cancellable under certain circumstances. As a result of
potential cancellation of orders and delays in customer shipments and delivery
schedules the Company's backlog at any particular date may not be indicative of
actual sales for any succeeding period. At September 30, 1996, the Company's
backlog was $5.4 million as compared to $2.4 million at September 30, 1995 and
$4.4 million at March 31, 1996 as compared to $1.0 million at March 31, 1995.
Although the Company builds to order, in order to achieve a reasonably
short manufacturing cycle, it must purchase components and subassemblies and
incur operating expenses which are relatively fixed in nature based on forecast
orders and sales. If orders and revenue do not meet the Company's forecasts in
any given quarter, the adverse impact of a shortfall in revenue may be magnified
by the Company's inability to reduce expenditures quickly, and could have a
material adverse effect upon the Company's results of operations for that
period. See "Risk Factors -- Fluctuations in Quarterly Operating Results;
History of Operating Losses."
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company's operating cash flow requirements, and
capital equipment financing needs have been met primarily through advances from
Odetics. In the year ended March 31, 1996 and for the six month period ended
September 30, 1996, the Company's aggregate net cash flow provided by (used in)
operations was ($3.5) million and $3.0 million, respectively, and its capital
equipment requirements were $531,000 and $703,000, respectively. Upon
consummation of this Offering, the Company will pay to Odetics the lesser of 40%
of the net proceeds of this Offering before deducting estimated offering
expenses, or $10 million and will enter into a Promissory Note payable to
Odetics representing the balance of its obligation to Odetics (approximately
$14.0 million assuming an initial public offering price of $11 per share). Such
Note will be due and payable in sixteen equal quarterly installments of
principal together with accrued interest at the rate charged to Odetics from
time to time by its principal lender (8.25% as of November 30, 1996), commencing
June 30, 1997.
The Company and Odetics are co-borrowers under a joint Loan and Security
Agreement (the "Agreement") with Imperial Bank and Comerica Bank-California
(together, the "Lenders") and are jointly and severally liable for all amounts
advanced to either borrower thereunder. The maximum credit facility is $17.0
million, of which approximately $9.1 million was outstanding at September 30,
1996. The Agreement grants to the Lenders a security interest in substantially
all of the Company's assets. Subject to the completion of this Offering and
certain other conditions, each Lender has agreed to release the Company from all
of its obligations under the Agreement. The Company has also received a
commitment letter from Imperial Bank for the establishment of a $5 million line
of credit, subject to the completion of this Offering and certain other
conditions. No assurance can be given that the commitment letter will result in
a binding line of credit. The Company's failure to obtain a binding line of
credit could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company entered into a new lease and plans to relocate to its new
facility in Irvine, California during the first calendar quarter of 1997.
Although the Company has no material capital expenditure commitments, it does
anticipate incurring costs of approximately $200,000 for relocation, leasehold
improvements and capital equipment for the new facility.
The Company anticipates that cash flow generated from operations,
prospective bank arrangements, and the net proceeds to the Company from the
Offering will be adequate to meet its capital requirements and enable it to
execute its operating plans and meet its obligations on a timely basis for at
least a twelve month period following the completion of the Offering.
28
<PAGE> 30
BUSINESS
This Prospectus contains forward looking statements that involve a number
of risks and uncertainties including, without limitation, those set forth in
"Risk Factors" and elsewhere in this Prospectus. The Company's actual results
may differ materially from any future performance discussed in the forward
looking statements and in this Business Section.
The Company designs, manufactures, markets and services automated magnetic
tape libraries used to manage, store, and transfer data in networked computing
environments. The Company is a leading provider of Digital Linear Tape ("DLT")
automated tape libraries for the high end of the networked computing market (one
terabyte capacity and above), shipping over 2,000 systems during the past three
years. The Company's products provide a high performance, reliable, cost
effective and scaleable storage solution for organizations requiring the backup,
archival and recovery of critical computer data.
The Company's products incorporate DLT tape drives as well as the Company's
proprietary IntelliGrip cartridge handling system, providing end users with
rapid and reliable access to computer data across a wide variety of networks.
The Company believes that the growing market acceptance of DLT technology has
been driven by a number of factors, including performance, cost, reliability and
durability advantages over competing storage technologies. The Company's
proprietary robotics system within each automated tape library provides
additional speed and reliability due to the accurate and timely manner in which
tape cartridges are loaded and unloaded into the DLT drives. The Company's
products are compatible with commonly used network operating systems, protocols
and topologies as well as with a broad range of storage management software. In
addition, these products are highly scaleable and permit maximum flexibility of
configuration. For example, the Company's 2640 Series is capable of storing 9.2
terabytes of data as a standalone unit or up to 46 terabytes of data with the
SystemLink Option, which links up to five 2640 units together for larger storage
requirements.
INDUSTRY BACKGROUND
In recent years, there has been a rapid proliferation of computers
throughout business organizations and a corresponding increase in the amount of
data that is generated, analyzed, distributed and stored. As a result, the
amount of disk storage capacity has grown significantly during recent years.
According to International Data Corporation, shipped hard disk capacity grew
from 76,000 terabytes in 1995 to an estimated 185,000 terabytes in 1996, and is
projected roughly to double on an annual basis through the year 2000. This
growth in the amount of data generated and stored has been driven by growth in
the installed base of computers, complex enterprise wide software applications
used in open system environments, and the emergence of data intensive image,
voice, video and multimedia processing. The increased demand for storage
products has also been fueled by a reduction in the cost of storage by 40% to
60% annually over each of the past three years.
Concurrently, with the increase in data storage requirements, business
processes have transitioned from manual operations and mainframe based systems
to complex and sophisticated networked computing environments in which critical
data is widely distributed throughout an organization. Strategic Research Corp.
estimates that the average amount of data stored in Unix networks will increase
from 138 gigabytes in 1994 to approximately 583 gigabytes in 1999. As dependence
on shared data has become more prevalent, network users are increasingly relying
on rapid access to computer files and data including sales and marketing data,
customer information, accounting records, project specifications and other
business critical information stored across local and wide area networks. In
addition, organizations are seeking to access and analyze large volumes of data
previously stored in archives through data warehousing and data mining
techniques in order to better manage and track their customer interactions and
business processes.
As both the volume and importance of data distributed across networks has
increased, the efficient and cost effective protection, management and
availability of stored data have become critical components of the overall
management of the network. The demand for effective access to this data has
generated a wide variety of storage management solutions utilizing both magnetic
and optical disks and a range of magnetic tape technologies. Each of these
solutions involves compromise among a variety of factors including data
integrity and reliability, cost, capacity, speed and scaleability. Most data
management systems are optimized for
29
<PAGE> 31
backup, archival, disaster recovery or hierarchical storage management ("HSM").
HSM, an established application in the mainframe market and an emerging feature
of the network computing environment, classifies stored data according to the
frequency and timeliness with which the organization requires access to such
data, providing rapid access to critical data and less immediate retrieval of
infrequently used data.
Cartridge based magnetic tape has emerged as the medium of choice for
backing up, archiving and recovering data in distributed computing environments
due to its cost effectiveness, high reliability and its ability to provide
nearline availability of data. Magnetic tape solutions have evolved considerably
over the past twenty years and have historically included two distinct
technologies: linear recording technology such as the 3480 and QIC which
provided high data integrity and rapid data accessibility but relatively low
storage density; and helical tape technology such as the 8 mm and 4 mm tape
systems which provided higher density, but generally resulted in lower data
transfer rates, increased maintenance requirements, less effective access to
random data and reduced data integrity.
DLT, a tape format introduced by Digital Equipment Corporation ("DEC") in
1993 and acquired by Quantum in 1994, incorporates the key advantages of linear
recording and helical tape technologies into a single technology. DLT is a high
performance, half inch, linear serpentine recording tape solution designed to
meet the capacity and reliability needs of high duty cycle applications such as
network server backup devices, midrange applications, multimedia processes and
online transactions. DLT utilizes a simple tape path and operates at a low,
constant tension, minimizing the wear on both the tape and head. The Company
believes DLT tape drives offer certain performance, durability, error
correction, cost and reliability advantages over competitive technologies,
including high speed data transfer rates, greater capacity and better data
integrity than other tape formats, and, in general, represent an ideal balance
between price and performance for the distributed computing environment.
In selecting alternatives for the protection, management and storage of
data, network administrators are primarily concerned with providing a storage
solution that meets their own needs for availability and capacity. To provide a
complete storage solution, however, tape library systems must also meet the
demanding needs of users relying on the network on a continuing basis.
Therefore, key criteria used to evaluate storage alternatives also include the
following: (i) reliability of the mechanical assemblies which handle and
transport storage media, (ii) the degree of system automation, (iii) the
compatibility with existing network operating systems, protocols and topologies,
(iv) the expandability and upgradeability of the storage device over time, (v)
the expected life cycle of the product, and (vi) the physical configuration of
the equipment. All of these factors must be considered in the context of the
overall operational cost of a given storage system, which includes both the
upfront cost of a particular storage system, as well as the annual cost of
operating, maintaining and supporting the systems and its users.
THE ATL SOLUTION
The Company's automated tape libraries provide a high performance, cost
effective, scaleable data storage solution for the protection, management and
accessibility of stored data across distributed networks. The Company's products
utilize DLT technology which is rapidly becoming a standard storage solution for
backup, archival and disaster recovery applications within the distributed
computing market. The Company's automated tape libraries incorporate the
Company's proprietary IntelliGrip robotics for the reliable, accurate and high
speed handling and loading of the DLT tape cartridges. These robotics provide
improved access times, reduced occurrence of human error and greater automation
which permits unattended automated backup and archiving. The Company's products
offer compatibility with commonly used network operating systems, protocols and
topologies, as well as with a broad range of storage management software. The
Company's products permit the network user prompt and convenient access to
stored data within the time constraints imposed by critical business operations.
In addition, the modular and scaleable design of the Company's products enables
users to upgrade storage capacity readily as their storage needs continue to
grow. The Company believes that its comprehensive knowledge of network storage
will enable it to provide additional cost effective storage solutions as storage
technologies and network architectures and technologies continue to evolve.
30
<PAGE> 32
STRATEGY
The Company's objective is to be the leading provider of automation
solutions for the management of data storage in distributed computing
environments. Key elements of the Company's strategy include the following:
Maintain Technological Leadership. The Company is a leading provider of
DLT based storage solutions. The Company's products utilize advanced
technologies such as the IntelliGrip robotics systems and sophisticated control
software in order to provide a high degree of reliable, cost effective and user
friendly storage systems. The Company intends to continue to dedicate
significant resources to develop products incorporating improved proprietary
robotics and advanced network connectivity, and to incorporate additional
evolving storage technologies and applications such as HSM. In mid-1997, the
Company expects to introduce a new generation of automated tape library systems
incorporating its Prism(TM) architecture, integrating into its system a high
performance, industry standard PCI bus. Libraries utilizing this architecture
will address an expanded range of applications from backup of Windows NT
networks to large data mining and warehousing applications.
Incorporate New Software Based Functionality. The Company is developing
additional software elements to complement its automated tape libraries and to
enhance their functionality in system monitoring and volume management. These
software elements will comply with industry standard application programming
interfaces, including the Simplified Network Management Protocol ("SNMP") and
Java Management Applications Programming Interface ("JMAPI"), and will permit
remote access for system monitoring and management within the internal network
and across the Internet.
Broaden Market Coverage. The Company's Prism product line is intended to
extend the Company's market position in distributed computing environments to
pursue opportunities at both the high end and low end of the automated tape
library market. At the low end, the Company plans to address the rapidly
emerging NT network opportunity by providing much of the high end functionality
featured in the Company's current products in a smaller, lower capacity entry
level product. The initial Prism product is expected to consist of a rack
mounted system having a capacity of 0.25 terabytes, and to offer effective
migration paths to higher capability and higher performance systems. At the high
end of this market, the Company intends to leverage critical elements of the
hardware in different system configurations to address high performance data
warehousing applications.
Enhance Indirect Distribution Channels. The Company sells its products
primarily through a leveraged indirect channel consisting of selected VARs who
have a strong market presence, have demonstrated the ability to work directly
with the end users, and who maintain relationships with major vendors of storage
management software. The Company intends to continue to devote substantial
marketing resources to support this important distribution channel. In addition,
the Company is implementing programs such as its expanded demonstration
equipment plan, warranty programs and "Certified Maintainer" programs to
complement the capabilities of its reseller channel partners. The Company
believes its VAR distribution channels to be particularly important for emerging
segments of the market where customer relationships and support are critical to
product acceptance.
Strengthen and Expand OEM Relationships. The Company also has established
and is pursuing additional relationships with major OEM customers and platform
and storage system vendors who the Company believes are essential to its
continued revenue growth and to the development of both its technology and
operating processes. The Company's OEM customers include Auspex, DEC, EMC and
Sun Microsystems, among others. The architecture of the Company's Prism(TM)
product line, which was developed in close cooperation with existing and
potential OEM customers, provides substantially enhanced compatibility with a
wide range of hardware and software interfaces. This more flexible architecture
creates a significant opportunity for the Company's OEM customers to add their
own proprietary technological functionality to the Company's automated tape
libraries, and to provide differentiated product offerings which would include
the Company's automated tape library as a fully integrated element.
31
<PAGE> 33
Provide Extensive Customer Support. The Company maintains two dedicated
service centers and has qualified more than 25 of its VAR and OEM customers as
certified maintenance providers to ensure prompt and reliable service of the
Company's products. The Company also works closely with its OEM customers in the
development of their products in order to obtain valuable input from end users
and to expedite product development. The Company believes extensive customer
support is an essential element of its success and intends to increase its focus
on customer service and support in the future.
PRODUCTS
The Company's product families consist of the ATL 7100, the ATL 520 and the
ATL 2640 Automated DLT Library Series. Within each product family, customers may
specify the type and quantity of DLT drives, the maximum number of cartridges
and a number of interface options. The Company's products are compatible with
major hardware platforms including Sun Microsystems, DEC, Hewlett Packard, IBM
and Silicon Graphics, and are supported by approximately 40 storage management
software applications.
The Company's products are specifically designed electromechanical and
robotic systems under the precise digital control of dedicated electronics
utilizing the Motorola 68332 microcontroller. These electronics control the
robot, load port, tape drives, control panel, position sensors and environmental
sensors. The products also include a wide variety of SCSI-2 interfaces
configured to meet specific needs of end users. The wide SCSI-2 interface
permits data transfer at rates up to 20 megabytes per second on each host
connection. The assignment of the library and drives among the SCSI interfaces
may be selected at installation of the products. The products permit sharing of
the library among several hosts to permit, for example, concurrent backup from
several local area networks.
All of the Company's current products are based upon DLT technology which
is a high performance, half inch, linear serpentine recording tape solution
designed to meet the capacity and reliability needs of high duty cycle
applications such as network backup servers, midrange data servers, multimedia
processing, and online transaction processing. DLT utilizes a simple tape path
and operates at a low, constant tension which minimizes both head and tape wear.
The Company believes that DLT tape drives offer certain performance,
reliability, durability, error correction and cost advantages over competitive
technologies which result in greater capacity, higher transfer rates and better
data integrity than other tape offerings.
The Company's products have demonstrated high field reliability comparable
to RAID disk arrays, even surpassing the Company's own rigid specifications. The
Company has also demonstrated that DLT drives exhibit greater reliability within
the Company's products than in other applications. The 7100 Series and 520
Series require only minimal installation support and have twelve month
recommended preventive maintenance intervals. In addition, the scaleable
architecture of the Company's products permits maximum flexibility in
configuration and permits the upgrade of installed products to increase
capacity, throughput or connectivity. This versatility allows end users to
purchase entry level systems at lower costs and to upgrade those systems in a
cost effective manner as their data management needs grow.
The Company's products share the following common features:
Advanced Robotics. The Company's products include the Company's
IntelliGrip precision cartridge handling system which is designed to load and
unload the drives in a highly accurate and controlled manner, thus increasing
cartridge longevity and enhancing system reliability. The IntelliGrip system
features automatic calibration and precisely controlled force which enables the
IntelliGrip to firmly grasp and gently exchange the DLT cartridges reducing wear
contaminants.
Unique System Configurations. The Company's products are manufactured from
electronic and electromechanical subassemblies which have been uniquely designed
to meet the demanding requirements for reliable automation by the DLT
technology. The frames of the libraries, for example, utilize a welded unibody
construction technique to provide a highly stable environment for the robotics
instead of the more typical rivet or screw construction techniques. Each product
series utilizes an architecture which can be adapted to a wide range of product
configurations. Because the Company's product families are typically designed to
address different market segments, several configuration options are available
within each product family.
32
<PAGE> 34
System Compatibility. The Company's products incorporate industry standard
interfaces and protocols and, therefore, are compatible with most common
platforms and operating systems used in the networked computing environment. The
Company has developed the active support of over 40 key storage management
software developers for the Unix, NT and NetWare environments to expand the
compatibility of the Company's products to include the widest possible range of
data management applications. Currently, most Unix data management applications
directly support the Company's products and, as data management requirements
increase in the NetWare and NT environments, a growing number of applications
for these network operating systems have begun providing direct support.
The following table illustrates the common configuration options for the
Company's products:
<TABLE>
<CAPTION>
TYPE OF NO. OF CARTRIDGE LIBRARY LIBRARY
TAPE DRIVES DRIVES CAPACITY CAPACITY* THROUGHPUT*
----------- ------ --------- --------- -------------
(TB) (GB/PER HOUR)
<S> <C> <C> <C> <C> <C>
7100 SERIES
ATL 2/68................... DLT 4000 2 68 1.4 10.8
DLT 7000 2 68 2.4 36.0
ATL 4/100.................. DLT 4000 4 100 2.0 21.6
DLT 7000 4 100 3.5 72.0
ATL 7/100.................. DLT 4000 7 100 2.0 37.8
DLT 7000 7 100 3.5 126.0
520 SERIES
ATL 2/28................... DLT 4000 2 28 0.6 10.8
DLT 7000 2 28 1.0 36.0
ATL 4/52................... DLT 4000 4 52 1.0 21.6
DLT 7000 4 52 1.8 72.0
2640 SERIES
ATL 2640................... DLT 4000 3 264 5.3 16.2
DLT 7000 3 264 9.2 54.0
ATL 6/176.................. DLT 4000 6 176 3.6 32.4
DLT 7000 6 176 6.2 108.0
ATL 9/88................... DLT 4000 9 88 1.8 48.6
DLT 7000 9 88 3.1 162.0
</TABLE>
- ---------------
* All values reflect native (uncompressed) mode.
7100 SERIES
In November 1996, the Company announced the introduction of its 7100
Series. The 7100 Series affords a cost effective solution for enterprise system
administrators by providing multi-terabyte backup and archiving capability in a
compact system configuration, with a high degree of commonality with the
products in the 520 Series in terms of parts, operations and training. The 7100
Series was designed for network environments requiring online disk capacities
which will exceed 250 gigabytes in the near future. The products in the 7100
Series are particularly appropriate for environments which already contain
products in the 520 Series due to the high degree of operational and support
compatibility between these two product families. The 7100 Series also
represents an attractive choice for rapidly growing network environments as a
result of the relatively low entry costs of these products and the significant
potential offered for cost effective field upgrades.
The 7100 Series currently includes twelve product configurations which
contain between two and seven DLT4000 or DLT7000 drives and are available with
either a 68 or 100 maximum cartridge capacity. The 7100 Series delivers capacity
ranging from 1.4 to 3.5 terabytes and backup performance of up to 126 gigabytes
per hour. A fully configured 7100 library achieving a 2:1 data compression can
backup a one terabyte database in only four hours. In addition, the 7100 Series
libraries can provide room for seven generations of a single
33
<PAGE> 35
terabyte backup. The 7100 Series also includes several advanced features such as
a touch screen control panel with a browser-like GUI for "point-and-click"
library management as well as enhanced access to both the DLT drives and
cartridges. The 7100 Series will also permit "hot swap" of the DLT drives during
library operation to maximize library availability. The Company intends to ship
its first products in the 7100 Series during the first calendar quarter of 1997.
The end user list prices for products in the 7100 Series typically will range
from approximately $65,000 to approximately $130,000 depending primarily on
drive configuration.
520 SERIES
The Company introduced the 520 Series departmental libraries in 1995 for
Unix network environments. The design of the 520 Series was optimized for the
DLT4000 and DLT7000 drive technology. The 4/52 and 2/28 models of the 520 Series
are designed for the demanding networked computing environment. The 4/52 models
primarily address high speed backup, archiving and HSM applications while the
2/28 models are used by companies making the transition from single drive to
multiple drive data storage management and are easily upgradeable to address
future requirements.
The 520 Series currently includes sixteen product configurations which
contain either two or four DLT4000 or DLT7000 drives and are available with
either a 28 or 52 maximum cartridge capacity. The 520 Series delivers capacity
ranging from 0.6 to 1.8 terabytes and backup performance of up to 72 gigabytes
per hour. All of the products in the 520 Series have demonstrated extremely high
field reliability and have achieved DLT drive reliability which exceed the
manufacturer's specifications. The Company has shipped over 1,200 products in
the 520 Series to date. The end user list prices for products in the 520 Series
generally range from approximately $50,000 to approximately $75,000 per library
depending primarily on drive configuration.
2640 SERIES
The 2640 Series was the Company's first product family to incorporate DLT
technology. The 2640 was originally developed pursuant to a strategic alliance
with DEC in 1993. The basic architecture of the 2640 was adapted from the
Company's earlier developments in midrange 3480 and 3490 tape libraries. The
2640 Series is sold primarily to the data intensive midrange segment of the
market. The 2640 Series products are used by companies which require unattended
backup of large quantities of data in a safe, reliable manner and by
organizations which have migrated to more demanding HSM applications. The
flexible design of the 2640 Series may be adapted to a variety of configurations
to deal with large amounts of data and is easily upgraded to meet future needs
in terms of both data capacity and transfer rate.
Libraries in the 2640 Series are controlled by the host computer through
either an RS-232C or a SCSI-2 interface. Products in the 2640 Series may be
integrated into configurations of up to five units which can be operated as a
single library to accommodate significant growth in end user requirements. The
2640 Series currently includes nine product configurations which contain between
three and nine DLT4000 or DLT7000 drives and have maximum capacities ranging
from 88 to 264 cartridges. The 2640 Series delivers capacity ranging from 1.8 to
9.2 terabytes per unit and backup performance of up to 162 gigabytes per hour
per unit. End user configurations of up to five units in the 2640 Series can be
created with the SystemLink option either at system installation, or at a later
time as requirements grow. The end user list prices for products in the 2640
Series generally range from approximately $75,000 to approximately $155,000
depending primarily on drive configuration.
PRODUCTS UNDER DEVELOPMENT
PRISM SERIES. In 1997, the Company expects to introduce a new generation
of automated tape library systems which will include a high performance,
industry standard PCI bus, to address both the emerging NT market and large data
mining and warehousing applications. One of the initial Prism(TM) products will
consist of a rack mounted system with a capacity of 0.25 terabytes, and will
offer effective migration paths to
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<PAGE> 36
higher capability and higher performance systems. The Company intends to develop
future versions within this product family which will also contain features to
increase speed and cartridge capacity and to enhance their integration into both
high end network and data archiving applications. The initial Prism products
were developed in close cooperation with existing and potential OEM customers
and provide substantially enhanced compatibility with a wide range of hardware
and software interfaces. Current automated tape library architectures are
restricted by the SCSI-2 specification which limits the integration of these
products into complex systems and network topologies. The Prism architecture
will permit remote monitoring and management of libraries distributed throughout
an enterprise, provide interface flexibility for a wide range of network and
channel protocols (including SCSI, FDDI, FC/AL and ATM), and facilitate a much
closer integration between the library and other elements of the storage
management system. These products also provide significant added value
opportunities for the Company's OEM partners.
SOFTWARE ENHANCEMENTS. The Company is developing additional software
elements to complement its automated tape libraries and to enhance their
functionality in system monitoring and volume management. These proprietary
software elements will comply with industry standard application programming
interfaces, including SNMP and JMAPI, and will provide remote access for system
monitoring and management within the internal network and across the Internet.
RESEARCH AND DEVELOPMENT
The Company's research and development efforts are principally focused on
the development of new generations of storage products for the networked
computer market. The Company employs 37 engineers and maintains key design teams
in the areas of electromechanical, electronic, software, system and process
design. The Company has also engaged a number of third parties for product
development activities including a recently announced OEM relationship with
Veritas Software to develop the industry's first Internet tape library
management product. In addition, the Company continuously solicits and receives
consultation from its end users regarding system features and capabilities, and
works closely with its OEMs during the development and integration of the OEM
products.
In the near future, the Company intends to focus its development activities
to continue to accommodate advances in DLT technology for integration into the
Company's current products. As leading supplier of DLT libraries, the Company
has been able to work closely with Quantum during the early stages of the
development of the new DLT7000 drive which has facilitated the Company's rapid
development of products using this new technology. While all of the Company's
products currently feature DLT technology, the Company believes the continued
system evolution in the networked computing market has led to an increasing need
for automated tape libraries which provide functional capabilities beyond those
available with current DLT technology. Accordingly, the Company continues to
evaluate emerging drive technologies which it believes will complement DLT.
The Company has gained significant expertise in the development of
automated tape libraries which extends beyond DLT technology and includes, among
other things, process automation knowledge and systems design and management
experience. The Company intends to continue to leverage this expertise to
support the development of additional removable storage media technologies which
it anticipates will play an important role in the distributed computer market.
The Company believes this expertise, together with its experience with a wide
variety of tape media, will enable the Company to adapt its products to
accommodate evolving storage technologies. There can be no assurance that the
Company will be able to make such adaptations on a timely basis, if at all.
The Company believes that, in order to provide comprehensive solutions for
the emerging requirements of storage management, it must also design and
introduce tape libraries that incorporate embedded firmware and software to
further support archiving, data warehousing and HSM applications. The Company is
currently developing software elements which will complement the use of its
products in the Unix market and which will enhance the introduction of its
products into the rapidly developing NT market. These products, which are being
developed in conjunction with Veritas Software, a major file system provider,
will permit monitoring and management of the Company's products either within a
network structure or through resources such as an
35
<PAGE> 37
enterprise wide intranet and the Internet, and should substantially improve the
efficiency and effectiveness of the use of multiple libraries within a single
organization. In addition, these products will permit volume management of
libraries without requiring extensive backup, archiving or HSM applications,
thereby making the products more attractive for smaller scale networks,
representing a majority of the NT installations.
The data storage market is characterized by rapid technological change and
is highly competitive with respect to product innovation and introduction. The
Company believes its continued success depends in part on its ability to enhance
its existing products and develop new products that incorporate the latest
technological advancements. While the Company intends to continue to make
significant investments in research and development, there can be no assurance
that it will be able to modify its existing products or introduce new products
which incorporate new storage technology on a timely basis, if at all.
COMPETITION
The Company competes directly, both domestically and internationally, with
a number of companies offering data storage products using various technologies,
including Sun Microsystems, Silicon Graphics, Compaq, Hewlett-Packard and
others. The Company's principal competitors in the DLT segment of the market
include ADIC, Breece Hill Technologies, Hewlett-Packard and StorageTek. DLT is
still an emerging technology and currently represents one of the smallest
segments of the tape storage market. The Company competes indirectly with a
large number of manufacturers offering tape storage systems using formats other
than DLT including 8 mm, 4 mm (DAT), 3480 and QIC who have larger installed
bases and may be expected to continue to provide intense competition for the DLT
format. These competitors include ADIC, Exabyte, Fujitsu, Hitachi, IBM, Spectra
Logic and StorageTek. The Company anticipates these competitors will expand the
functionality and performance of their selected storage technologies to compete
effectively with DLT. In addition, if DLT continues to maintain market
acceptance, many of these competitors could elect to offer DLT systems. The
Company also expects increased competition from large integrated computer
equipment companies, many of whom have historically incorporated their own tape
storage products into their mainframe systems, and are broadening their focus to
include the distributed computing market. Increased competition is likely to
result in price reductions, reduced gross margins and loss of market share, all
of which could have a material adverse effect on the Company's business,
financial condition and results of operations.
Many of the Company's current and potential competitors have substantially
greater name recognition and financial, marketing, technical and other resources
than the Company. The Company's current and potential competitors may develop
new technologies and products that are more effective than the Company's
products. In addition, many of these companies sell directly to end users, which
the Company believes may provide a competitive edge over the Company when
marketing either similar products or alternative data storage solutions. The
Company is not ISO-9000 certified, unlike certain of its competitors, which may
limit certain customers' ability to purchase directly from the Company. There
can be no assurance that the Company will be able to compete successfully
against either current or potential competitors or that competition will not
have a material adverse effect on the Company's business, operation results and
financial condition.
The market for the Company's products is highly competitive and is
characterized by rapidly changing technology and evolving standards. The Company
believes that its ability to compete depends on a number of factors, including
the success and timing of new product development by the Company and its
competitors, compatibility of the Company's products with a broad range of
computing systems, product performance, reliability and price, and customer
support. The Company believes that the principal competitive factors in the
networked computing market are storage capacity, data transfer rate, low cost of
ownership, price, product quality and reliability, timing of new product
introductions and ability to meet customer volume needs.
SALES AND MARKETING; PRINCIPAL CUSTOMERS
The Company markets and sells its products through indirect sales channels
comprised primarily of VARs and OEMs pursuant to strategic arrangements and
individual purchase agreements. Sales of new technological advancements are
often initially made through VARs who generally evaluate, integrate and
36
<PAGE> 38
adopt new technology more quickly than OEMs. As a technology achieves greater
market acceptance, OEM sales generally have represented an increased portion of
the sales of the products incorporating that technology. During the year ended
March 31, 1996, direct sales to VARs and OEMs accounted for approximately 70%
and 30%, respectively, of the Company's net sales.
The Company has relationships with more than 100 VARs who integrate the
Company's products with storage management software to provide comprehensive
storage solutions. The Company has certified 40 independent software developers
including EMC, Hewlett-Packard, Legato, OpenVision, Spectralogic and Workstation
Solutions, among others, who provide storage management software which is
compatible with the Company's products. The Company's strategy is to pursue VARs
who have expertise in storage management, strong established relationships with
end users and the experience to understand and respond to their customers'
critical needs. The Company typically enters into a one year Reseller Agreement
with its VARs, which are usually subject to cancellation by the Company in the
event the VAR does not meet certain requirements. The Company provides marketing
and training support for its VARs and offers cooperative marketing programs to
certain VARs.
The Company has also entered into agreements with several major OEMs,
including, among others, Auspex, DEC, EMC and Sun Microsystems, who incorporate
the Company's products into systems sold by the OEMs. The Company has entered
into strategic relationships with certain of these OEMs which has enabled the
Company to work with OEMs early in their product development cycle thereby
providing valuable development feedback to the Company. The sales cycle for OEMs
often encompasses a long lead time and generally involves extensive product and
system qualification, evaluation, integration and verification. The Company
believes the OEM channel is also critical to the Company's success because OEMs
have traditionally taken a more active role in the development, support and
servicing of the Company's products.
The Company's maintains five regional sales offices in the United States
based in Boston, Chicago, Dallas, San Francisco and Washington to facilitate
close cooperation and communication with its VAR and OEM customers. The Company
also employs four international sales managers who assist in the marketing of
the Company's products to VARs and OEMs throughout Europe and Asia.
International sales constituted approximately 28% of the Company's sales during
the year ended March 31, 1996. The Company anticipates that international sales
will continue to represent an increasing portion of the Company's net sales.
Sales to customers outside the United States are subject to certain risks. See
"Risk Factors -- International Operations; Risks Associated with International
Sales."
A small number of customers have historically accounted for a substantial
portion of the Company's net sales. Sales to DEC and DataLink accounted for
approximately 20.1% and 8.4%, respectively, of the Company's net sales during
the year ended March 31, 1996. Sales to EMC and DEC accounted for approximately
11.8% and 10.6%, respectively, of the Company's net sales for the six months
ended September 30, 1996. No other customer accounted for 10% or more of sales
during this period. The Company's ten largest customers; however, accounted for
an aggregate of 57.4% of the Company's sales during the eighteen month period
ended September 30, 1996.
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<PAGE> 39
END USERS
End users of the Company's products include a number of large corporations
in a variety of industries. A representative list of end users of the Company's
products is set forth below:
TELECOMMUNICATIONS
ADC Telecommunications, Inc.
AT&T Corporation
Bell Northern Research
Hughes Aircraft Company
Warner Brothers Inc.
TRANSPORTATION
British Airways
BMW
Ford Motor Company
Rover Group PLC
FINANCIAL SERVICES
Bank of Boston Corporation
MBNA America Bank, N.A.
Swiss Bank Corporation
HEALTH SERVICES
Aetna, Inc.
HealthNet
TECHNOLOGY
Adobe Systems Incorporated
Advanced Micro Devices, Inc.
CREO Products, Inc.
Electronic Data Systems Corporation
Hewlett-Packard Company
Intel Corporation
Motorola, Inc.
Nokia Corporation
Sun Microsystems, Inc.
Texas Instruments Incorporated
INDUSTRIAL
Arco Chemical Company
Chevron Corporation
Mattel, Inc.
Carolina Power and Light Company
Wisconsin Power & Light Company
RESEARCH AND DEVELOPMENT
CERN (Centre Europeen pour la Recherche Nucleaire)
Charles Stark Draper Laboratory, Inc.
National Oceanic and Atmospheric
Administration (NOAA)
Sandia Laboratory
USAF -- Edwards Air Force Base
CUSTOMER SERVICE AND SUPPORT
The quality and reliability of the Company's products and the ongoing
support of these products is a key element of the Company's business. All of the
Company's products include a one year warranty which provides onsite customer
assistance on the next business day in the United States. In addition, warranty
coverage may be upgraded to include onsite customer assistance with a four hour
response time, which assistance is available 24 hours per day, seven days a
week.
The Company maintains two dedicated service centers and has qualified more
than 25 of its VAR and OEM customers as certified maintenance providers ("CMPs")
to service and provide support for the Company's products. The Company provides
a formal training program for its CMPs. The CMPs often provide the initial
physical response for onsite repairs, typically replacing parts and possibly
even reconfiguring the systems. The CMPs also gather critical data at each call
which enables the Company to continue to monitor its robotics systems.
To supplement its own nationwide field service program, the Company has
contracted with a national organization to provide on-call field service to the
Company's customers.
MANUFACTURING
The Company manufactures all of its tape libraries at its facility in
Anaheim, California. The Company's manufacturing operations currently occupy
approximately 25,000 square feet which the Company leases from Odetics. The
Company has leased and plans to relocate its corporate headquarters and
manufacturing facilities
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<PAGE> 40
to a new 120,000 square foot facility located in an industrial complex in
Irvine, California, during the first calendar quarter of 1997, of which
approximately 50,000 square feet will be attributed to manufacturing space. The
Company currently operates three assembly lines during one daily eight hour
shift and plans to expand to four lines in its new Irvine facility.
The Company manufactures the robotics subassemblies used in its automated
tape libraries and performs final assembly and testing of purchased components.
The Company's manufacturing processes consist primarily of final systems
integration and quality assurance. Seventy percent of the manufacturing process
consists of quality assurance and testing which is conducted on a 24 hour basis.
The Company depends, to a large degree, on outside suppliers to provide most of
the components incorporated in the Company's products including the DLT drives,
circuit boards, moldings and chassis. The Company intends to continue to
outsource as much of the manufacturing as possible in order to maximize
manufacturing flexibility. While many of the parts and components used in the
Company's products are available from a number of fabricators in California, the
DLT drives are available only from a single supplier, Quantum. Quantum may
terminate its agreement with the Company for any reason upon 90 days notice. Any
disruption in the Company's relationship with such supplier would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Risk Factors -- Dependence on Quantum." In addition,
the Company currently purchases most of its circuit boards from one supplier.
The Company has, however, qualified a second supplier who can also provide the
boards.
EMPLOYEES
At November 30, 1996, the Company employed 152 employees, including 54 in
manufacturing, 37 in engineering, 28 in customer service, 21 in sales and
marketing and 12 in finance and administration. The Company also employs a small
number of temporary and contract employees. The Company is not a party to any
collective bargaining agreement or other similar agreement. The Company has not
experienced any work stoppages to date. The Company believes that its
relationship with its employees is good.
FACILITIES
The Company's principal administrative, engineering and manufacturing
facilities are located in one 65,000 square foot facility in Anaheim,
California, which the Company leases from Odetics for which the Company is
charged approximately $60,000 per month which includes the Company's share of
the operating expenses, property tax and insurance premiums on the building. The
Company plans to relocate its corporate headquarters and manufacturing
facilities to a new 120,000 square foot facility in Irvine, California during
the first calendar quarter of 1997. The new lease expires in October 2003, but
the Company has an option to extend the lease for an additional five year
period. The Company believes this new facility will be sufficient for its needs
through at least the next five years. The Company also leases office space for
its sale representatives in Boston, Chicago, Dallas, Washington, D.C., England,
Germany and Taiwan.
LEGAL PROCEEDINGS
In the ordinary course of business, the Company may be involved in legal
proceedings from time to time. As of the date of this Prospectus, there are no
material legal proceedings pending against the Company.
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<PAGE> 41
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning the Company's
executive officers and directors as of the date of this Prospectus:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ----------------------------------- --- -----------------------------------------
<S> <C> <C>
Kevin C. Daly, Ph.D. .............. 52 President, Chief Executive Officer and
Chairman of the Board
Gregory A. Miner(1)................ 42 Chief Financial Officer
Chester Baffa...................... 56 Vice President, Marketing and Sales
Todd Kreter........................ 37 Vice President, Operations
Steve Morihiro..................... 38 Vice President, Engineering
James A. Pipp...................... 51 Vice President, Controller and Secretary
Mark Spowart....................... 45 Vice President, Worldwide Sales
Joel Slutzky....................... 57 Director
Crandall Gudmundson................ 65 Director
</TABLE>
- ---------------
(1) Mr. Miner is the Chief Financial Officer of Odetics and is serving as Chief
Financial Officer of the Company on an interim basis pending the Company's
retention of a successor.
Kevin C. Daly, Ph.D. has served as President and Chief Executive Officer
and a member of the Board of Directors of the Company since its formation in
January 1993, and Chairman of the Board since December 1996. Dr. Daly has served
as a member of the Board of Directors of Odetics since June 1993 and as Vice
President and Chief Technical Officer of Odetics since 1985 when he joined
Odetics. From March 1974 until June 1985, Dr. Daly served as Director of Control
and Dynamics Division of the Charles Stark Draper Laboratory. During that
period, Dr. Daly participated in the design and development of guidance,
navigation and control systems for several major space programs including the
United States Space Shuttle program. Dr. Daly served as a manager of electronic
systems for a major space program of the United States Air Force from March 1970
to March 1974. Dr. Daly has also served on several advisory committees to the
United States Government. Dr. Daly holds a Bachelor of Science degree in
Electrical Engineering from the University of Notre Dame, and a Master of
Science, a Master of Arts and a Ph.D. degree in Engineering from Princeton
University.
Gregory A. Miner has served as Vice President of Finance and Chief
Financial Officer of the Company and Odetics since January 1994. Prior to
joining the Company, Mr. Miner served as Vice President, Chief Financial Officer
and a member of the Board of Directors of Laser Precision Corporation, a
manufacturer of telecommunications test equipment, from January 1984 until
December 1993. Mr. Miner has a Bachelor of Arts degree from California
Polytechnic State University, San Luis Obispo, and is a certified public
accountant.
Chester Baffa has served as Vice President, Marketing and Sales since June
1996. Prior to joining the Company, Mr. Baffa was Senior Vice President,
Marketing and Sales at Micropolis Corp., a manufacturer of high capacity disk
and RAID storage products from April 1983 until September 1994. Prior to April
1983, Mr. Baffa was Vice President, Marketing and Sales at Oki Data Corp. Mr.
Baffa holds a Bachelor of Arts degree in Economics from Allegheny College.
Todd Kreter has served as the Company's Vice President, Operations since
June 1996 and as Director of Operations from January 1993 until June 1996. Mr.
Kreter served as a project manager at Odetics from 1986 until 1992. Mr. Kreter
was an engineering manager for Omutec, a division of Odetics which is engaged in
production of flight control hardware for commercial and military aircraft from
1986 until 1989. Prior to 1986, Mr. Kreter was a research and development
engineer at Ford Aerospace Corporation. Mr. Kreter holds a Bachelor of Science
degree in Mechanical Engineering from California State University, Fullerton.
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<PAGE> 42
Steve Morihiro has served as the Company's Vice President, Engineering
since June 1996. Mr. Morihiro served as the Company's Director of Engineering
from December 1994 until June 1996, as engineering manager from October 1992
until December 1994 and as a Project Manager from January 1992 until October
1992. Mr. Morihiro served as a mechanical engineering manager at Odetics for the
Advanced Intelligent Machines division from October 1990 until October 1991 and
as operations manager from October 1991 until December 1991. Prior to joining
Odetics, Mr. Morihiro served from 1979 until 1982, and then again from 1983
until 1990, in various engineering and program management capacities at Western
Design Corporation, a developer and manufacturer of material handling equipment
for the defense industry. Mr. Morihiro holds a Bachelor of Science degree in
Mechanical Engineering from the University of California at Berkeley, and a
Master of Science degree in Physics from the University of California at Irvine.
James A. Pipp has served as the Vice President, Controller since June 1996
and as Controller since January 1993. From 1981 to 1993, Mr. Pipp served as the
Corporate Controller of Odetics. Mr. Pipp holds a Bachelor of Science degree in
Accounting from California State University, Long Beach, and is a certified
public accountant.
Mark Spowart has served as Vice President, Worldwide Sales since June 1996
and has been responsible for the development and organization of the Company's
sales force since March 1992. Prior to joining the Company, Mr. Spowart served
in general sales management positions in various segments of the computer
industry including mainframe systems, Unix client servers and PC LAN. From April
1990 to March 1992, Mr. Spowart was District Manager for Auspex Systems, and
from March 1982 until April 1990, Mr. Spowart was employed by Memorex Telex in
general sales management positions. Mr. Spowart holds a Master of Business
Administration and a Bachelor of Science degree in Graphic Communications from
California State Polytechnic University, San Luis Obispo.
Joel Slutzky has served as a director of the Company since its formation in
January 1993. Mr. Slutzky has served as Chairman of the Board and Chief
Executive Officer of Odetics since he cofounded Odetics in 1969. From August
1993 until January 1994, Mr. Slutzky served as the Chief Financial Officer of
Odetics, and as President of Odetics from 1969 to 1975. Prior to founding
Odetics, Mr. Slutzky was an engineering manager at Leach Corporation, now part
of the Lockheed Electronics Division of Lockheed Corporation. Mr. Slutzky holds
a Bachelor of Science degree in both Electrical Engineering and Mechanical
Engineering and a Master of Science in Mechanical Engineering degree from the
University of Illinois.
Crandall Gudmundson has served as a director of the Company since February
1993. Mr. Gudmundson is a founder of Odetics, has served as President of Odetics
since 1975 and has been a director of Odetics since 1979.
All directors hold office until the next annual meeting of stockholders and
until their successors have been elected and qualified or upon their earlier
resignation or removal. Officers are appointed to serve at the discretion of the
Board of Directors.
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<PAGE> 43
EXECUTIVE COMPENSATION
The following table sets forth the aggregate compensation paid by any
person for all services rendered in all capacities to the Company to the Chief
Executive Officer and to each of the three additional most highly compensated
executive officers (the "Named Executive Officers") whose salary and bonus
exceeded $100,000 for the fiscal year ended March 31, 1996. No other executive
officer's total annual salary and bonus exceeded $100,000. Prior to the
Offering, the Named Executive Officers were compensated by Odetics and
participated in Odetics' other employee plans. Except as indicated below, no
Named Executive Officer received other compensation in excess of the lesser of
$50,000 or 10% of such officer's compensation.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------------
NUMBER OF
ANNUAL COMPENSATION RESTRICTED SECURITIES ALL OTHER
NAME AND PRINCIPAL ----------------------------------- STOCK UNDERLYING COMPENSATION
POSITIONS YEAR SALARY($)(1) BONUS($)(2) AWARDS($)(3) OPTIONS(#)(4) ($)(5)
- --------------------------- ------ ------------ ----------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Kevin C. Daly, Ph.D........ 1996 $164,104 $50,000 $2,465 12,000 $6,600
Chief Executive Officer, 10,000(6)
President and Chairman of
the Board
Gregory A. Miner........... 1996 135,042 38,800 2,567 12,000 6,600
Chief Financial Officer 10,000(6)
Chester Baffa.............. 1996 100,067 36,668 1,914 -- --
Vice President,
Marketing and Sales
Mark Spowart............... 1996 83,712 173,739 2,567 -- 6,600
Vice President,
Worldwide Sales
</TABLE>
- ---------------
(1) Represents amounts paid by Odetics and its subsidiaries on an aggregate
basis. The salaries of Messrs. Daly, Baffa and Spowart were charged by
Odetics to the Company. Following the Offering, the Company will pay to
Odetics fifty percent of Mr. Miner's salary while Mr. Miner continues to
serve as Chief Financial Officer. Also includes amounts earned in fiscal
1996 but deferred under Odetics' Executive Deferral Plan and 401(k) Plan.
(2) Represents amounts earned under Odetics' Officer Compensation Program in
fiscal 1996 and paid in fiscal 1997.
(3) Represents the Named Executive Officer's share of Odetics' contribution to
the Odetics Associate Stock Ownership Plan during fiscal 1996 based on the
closing price of Odetics' Class A Common Stock at March 31, 1996.
(4) Represents options to purchase Odetics Class A Common Stock.
(5) Represents Odetics' matching contribution under Odetics 401(k) plan to the
respective accounts of the Named Executive Officers.
(6) During fiscal 1996, Odetics offered all holders of options that were granted
in fiscal 1994 the opportunity to have the option exercise price of the
outstanding fiscal 1994 options reduced to the then current 1996 market
price. In connection with any such option repricing, one third of any
repriced options were required to be canceled.
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<PAGE> 44
OPTION GRANTS
The following table sets forth information concerning the grant to each of
the Named Executive Officers of options to purchase Odetics Class A Common Stock
during the fiscal year ended March 31, 1996. Prior to the Offering, the Named
Executive Officers were entitled to participate in Odetics' 1994 Incentive Stock
Plan.
OPTION GRANTS IN FISCAL YEAR ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------------------
POTENTIAL
REALIZATION VALUE
AT ASSUMED
PERCENT OF ANNUAL RATES OF
NUMBER OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OF OPTION TERM(3)
OPTIONS EMPLOYEES IN BASE PRICE ----------------------
NAME GRANTED(1) FISCAL 1996 ($/SH)(2) EXPIRATION DATE 5% 10%
- -------------------------- ---------- ------------ ----------- --------------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Kevin C. Daly, Ph.D.(4)... 12,000 5.8% $4.25 5/23/05 $50,940 $129,093
Gregory A. Miner.......... 12,000 5.8 4.25 5/23/05 50,940 129,093
Chester Baffa(4).......... -- -- -- -- -- --
Mark Spowart(4)........... -- -- -- -- -- --
</TABLE>
- ---------------
(1) The options granted to the Named Executive Officers were granted on May 23,
1995 pursuant to Odetics' 1994 Incentive Stock Plan and entitle the
optionee to purchase shares of Class A Common Stock of Odetics. Such
options have a maximum term of ten years, subject to earlier termination in
the event of the optionee's termination of employment with the Company.
Options vest in three equal annual installments commencing in May 1996.
(2) The exercise price per share of the options granted represented the closing
price of the underlying shares of Odetics Class A Common Stock on the date
the options were granted.
(3) The 5% and 10% assumed rates of appreciation are prescribed by the rules and
regulations of the Securities and Exchange Commission and do not represent
management's estimate or projection of future trading prices of the Class A
Common Stock of Odetics.
(4) On December 19, 1996, the Company granted to Messrs. Daly, Baffa and
Spowart, options to purchase 250,000 shares, 50,000 shares and 50,000
shares, respectively, of the Company's Class B Common Stock, pursuant to
the Company's 1996 Stock Incentive Plan. Such options vest in three equal
annual installments commencing December 1998 and expire in December 2006.
The exercise price per share of these options is $5.00, representing the
fair market value of the Company's underlying Class B Common Stock on the
grant date, as determined by the Company's Board of Directors. See "-- 1996
Stock Incentive Plan."
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<PAGE> 45
OPTION EXERCISES AND HOLDINGS
The following table sets forth certain information with respect to
exercises of options to purchase Odetics Class A Common Stock during fiscal 1996
by each of the Named Executive Officers.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1995
AND OPTION VALUES FOR FISCAL YEAR ENDED MARCH 31, 1995
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
NUMBER OF UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES VALUE OPTIONS AT MARCH 31, 1996 AT MARCH 31, 1996($)(2)
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE(#) (1)($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------ ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Kevin C. Daly, Ph.D. ......... 10,000 $ 38,750 20,250 13,175 $35,764 $47,153
Gregory A. Miner.............. -- -- 14,222 13,111 42,666 39,333
Chester Baffa................. -- -- -- -- -- --
Mark Spowart.................. -- -- -- -- -- --
</TABLE>
- ---------------
(1) Value realized is determined by subtracting the exercise price from the fair
market value (the closing price for Odetics Class A Common Stock as
reported by the Nasdaq National Market) as of November , 1995 (the date
that the options were exercised), which was $8.50, and multiplying the
resulting number by the number of underlying shares of Odetics Class A
Common Stock.
(2) Value is determined by subtracting the exercise price from the fair market
value (the closing price for the Class A Common Stock of Odetics as
reported by the Nasdaq National Market) as of March 31, 1996 ($7.25 per
share) and multiplying the resulting number by the underlying shares of
Odetics Class A Common Stock.
REPRICED OPTIONS
In May 1995, Odetics repriced certain outstanding stock options which were
originally granted in January 1994. The repricing was accomplished by means of
an offer by Odetics to the holders of the options, including certain of the
Named Executive Officers, to reduce by one third the number of shares covered by
these options in consideration for a reduction in the exercise price of the
options from their original exercise price to the market price of Odetics Class
A Common Stock as of the date of the offer. The following table sets forth
certain information with respect to the repricing of such options held by the
Named Executive Officers.
TEN YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
LENGTH OF
AMENDED ORIGINAL
ORIGINAL NUMBER OF OPTION
NUMBER OF SECURITIES MARKET PRICE EXERCISE TERM
UNDERLYING UNDERLYING OF STOCK AT PRICE AT NEW REMAINING
OPTIONS OPTIONS THE TIME OF TIME OF EXERCISE AT DATE OF
NAME DATE REPRICED(#) REPRICED(#) REPRICING($) REPRICING($) PRICE($) REPRICING
- --------------------- --------- ------------- ------------- ------------ ------------ -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Kevin C. Daly........ 05/23/95 15,000 10,000 $ 4.25 $ 9.90 $ 4.25 8.67 years
Gregory A. Miner..... 05/23/95 23,000 15,333 4.25 9.90 4.25 8.67 years
Chester Baffa........ -- -- -- -- -- -- --
Mark Spowart......... -- -- -- -- -- -- --
</TABLE>
1996 STOCK INCENTIVE PLAN
The Company's 1996 Stock Incentive Plan (the "1996 Plan") became effective
on December 19, 1996 upon adoption by the Board of Directors and the Company's
sole stockholder, Odetics. A total of 2,000,000 shares of Class B Common Stock
have been authorized for issuance under the 1996 Plan. In no event may any one
participant in the 1996 Plan receive option grants or direct stock issuances for
more than 250,000 shares per calendar year.
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<PAGE> 46
The 1996 Plan is divided into three separate components: (i) the
Discretionary Option Grant Program under which eligible individuals in the
Company's employ or service (including officers, nonemployee Board members and
consultants) may, at the discretion of the Plan Administrator, be granted
options to purchase shares of Class B Common Stock at an exercise price not less
than the fair market value of those shares on the grant date, (ii) the Stock
Issuance Program under which such individuals may, in the Plan Administrator's
discretion, be issued shares of Class B Common Stock directly, through the
purchase of such shares at a price not less than fair market value at the time
of issuance or as a bonus awarded for services rendered the Company, and (iii)
the Automatic Option Grant Program under which option grants will automatically
be made at periodic intervals to eligible nonemployee Board members to purchase
shares of Class B Common Stock at an exercise price equal to 100% of the fair
market value of those shares on the grant date.
The Discretionary Option Grant Program and the Stock Issuance Program will
be administered by the Company's Compensation Committee. The Compensation
Committee as Plan Administrator will have complete discretion to determine which
eligible individuals are to receive option grants or stock issuances, the time
or times when such option grants or stock issuances are to be made, the number
of shares subject to each such grant or issuance, the status of any granted
option as either an incentive stock option or a nonstatutory stock option under
the Federal tax laws, the vesting schedule to be in effect for the option grant
or stock issuance and the maximum term for which any granted option is to remain
outstanding. The administration of the Automatic Option Grant Program will be
self executing in accordance with the express provisions of that program.
The exercise price for the shares of Class B Common Stock subject to option
grants made under the 1996 Plan may be paid in cash or in shares of Common Stock
valued at fair market value on the exercise date. The option may also be
exercised through a same day sale program without any cash outlay by the
optionee. In addition, the Plan Administrator may provide financial assistance
to one or more individuals in their acquisition of shares of common stock
through option exercises or direct issuances by allowing such individuals to
deliver a full recourse, interest bearing promissory note in payment of the
applicable exercise or issue price and any associated withholding taxes incurred
in connection with their acquisition of those shares.
In the event that the Company is acquired by merger or sale of
substantially all of the Company's assets or more than 50% of the Company's
outstanding voting securities, each outstanding option under the Discretionary
Option Grant Program which is not to be assumed by the successor corporation or
otherwise to continue in effect will automatically accelerate in full, and all
unvested shares under the Stock Issuance Program will immediately vest, except
to the extent the Company's repurchase rights with respect to those shares are
to be assigned to the successor corporation. The Plan Administrator will have
the authority under the Discretionary Option Grant and Stock Issuance Programs
to grant options and to structure repurchase rights so that the shares subject
to those options or repurchase rights will automatically vest in the event the
individual's service is terminated, whether involuntarily or through a
resignation for good reason, within a designated period (not to exceed eighteen
(18) months) following (i) an acquisition in which those options are assumed or
those repurchase rights are assigned or (ii) a hostile change in control of the
Company effected by a successful tender offer for more than 50% of the Company's
outstanding voting stock or by proxy contest for the election of Board members.
Stock appreciation rights are authorized for issuance under the
Discretionary Option Grant Program which provide the holders with the election
to surrender their outstanding options for an appreciation distribution from the
Company equal to the excess of (i) the fair market value of the vested shares of
Common Stock subject to the surrendered option over (ii) the aggregate exercise
price payable for such shares. Such appreciation distribution may be made in
cash or in shares of Class B Common Stock.
The Plan Administrator has the authority to effect the cancellation of
outstanding options under the Discretionary Option Grant Program in return for
the grant of new options for the same or different number of option shares with
an exercise price per share not less than the fair market value of the Class B
Common Stock on the new grant date.
Under the Automatic Option Grant Program, each individual who first joins
the Board after the effective date of this Offering as a nonemployee Board
member will receive an option grant for 10,000 shares of Class B
45
<PAGE> 47
Common Stock at the time of his or her commencement of Board service, provided
such individual has not otherwise been in the prior employ of the Company. In
addition, at each annual stockholders meeting, beginning with the first annual
meeting held after the effective date of this Offering, each individual who is
to continue to serve as a nonemployee Board member will receive an option grant
to purchase 7,000 shares of Class B Common Stock.
Each automatic grant will have an exercise price equal to the fair market
value per share of Class B Common Stock on the grant date and will have a
maximum term of ten years, subject to earlier termination following the
optionee's cessation of Board service. The initial grant will vest immediately
and each annual grant thereafter will vest over four years measured from the
grant date. However, the shares subject to each outstanding option will
immediately vest upon (i) certain changes in the ownership or control of the
Company's or (ii) the death or disability of the optionee while serving as a
Board member.
The Board may amend or modify the 1996 Plan at any time. The 1996 Plan will
terminate on December 18, 2006, unless sooner terminated by the Board.
On December 20, 1996, the Board granted options to purchase 879,000 shares
of Class B Common Stock in the aggregate under the 1996 Plan to certain
employees of the Company, including the following executive officers: Chester
Baffa, Kevin C. Daly, Ph.D., Todd Kreter, Steve Morihiro, James A. Pipp and Mark
Spowart. The options vest over a three year period commencing one year from the
grant date and have an exercise price of $5.00 per share. Such exercise price is
equal to the fair market value of the Class B Common Stock on the grant date, as
determined by the Board based on a number of factors, including the reduced
voting rights of the shares, and reflects the volatile nature of the stock
market and the uncertainty which existed at the time of grant as to the ultimate
completion of the Offering.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AGREEMENTS AND CHANGE OF CONTROL
ARRANGEMENTS
The Company does not currently have any employment contracts in effect with
any of its executive officers. The Company provides incentives such as salary,
benefits and option grants (which are typically subject to a four year vesting
schedule) to attract and retain executive officers and other key employees. The
Compensation Committee, as Plan Administrator of the 1996 Plan, will have the
authority to provide for the accelerated vesting of the shares of Class B Common
Stock subject to any outstanding options held by any unvested shares of Class B
Common Stock held by such individual, in connection with the termination of the
individual's employment following an acquisition in which these options are
assumed or the repurchase rights with respect to the unvested shares are
assigned or certain hostile changes in control of the Company.
BOARD COMMITTEES
Upon consummation of the Offering, the Company intends to establish a
Compensation Committee, which will administer the Company's Stock Option Plans,
and an Audit Committee which will supervise and make recommendations and
decisions with respect to the periodic audits of the Company's financial
results. The Company intends to appoint two outside directors following this
Offering who will serve on these committees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Slutsky and Gudmundson, directors of the Company, are stockholders,
executive officers and directors of Odetics. No other interlocking relationship
exists between the Company's Board of Directors or Compensation Committee and
the board of directors of any other company.
DIRECTOR COMPENSATION
The Company currently does not provide any cash compensation to its
directors but does reimburse out-of-pocket expenses incurred by its directors in
connection with attendance at board and committee meetings.
46
<PAGE> 48
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the Delaware General Corporation Law, the Company can
indemnify its directors and officers against liabilities they may incur in such
capacities, including liabilities under the Securities Act of 1933, as amended
(the "Securities Act"). The Company's Bylaws provide that the Company will
indemnify its directors and officers to the fullest extent permitted by law and
require the Company to advance litigation expenses upon receipt by the Company
of an undertaking by the director or officer to repay such advances if it is
ultimately determined that the director or officer is not entitled to
indemnification. The Bylaws further provide that rights conferred under such
Bylaws do not exclude any other right such persons may have or acquire under any
bylaw, agreement, vote of stockholders or disinterested directors or otherwise.
The Company's Certificate of Incorporation provides that, pursuant to
Delaware Law, its directors shall not be liable for monetary damages for breach
of the directors fiduciary duty of care to the Company and its stockholders.
This provision in the Certificate of Incorporation does not eliminate the duty
of care, and in appropriate circumstances equitable remedies such as injunctive
or other forms of non-monetary relief will remain available under Delaware Law.
In addition, each director will continue to be subject to liability for breach
of the director's duty of loyalty to the Company or its stockholders, for acts
or omissions not in good faith or involving intentional misconduct or knowing
violations of law, for actions leading to improper personal benefit to the
director, and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under Delaware law. The provision also does not
affect a director's responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws.
The Company has entered into agreements to indemnify its directors and
certain of its officers in addition to the indemnification provided for in the
Certificate of Incorporation and Bylaws. These agreements, among other things,
indemnify the Company's directors and certain of its officers for certain
expenses (including attorneys' fees), judgments, fines and settlement amounts
incurred by such person in any action or proceeding, including any action by or
in the right of the Company, on account of services as a director or officer of
the Company, or as a director or officer of any other company or enterprise to
which the person provides services at the request of the Company.
47
<PAGE> 49
RELATIONSHIP BETWEEN THE
COMPANY AND ODETICS
Prior to this Offering, the Company has been a wholly owned subsidiary of
Odetics. As the sole stockholder, Odetics was responsible for providing the
Company with financial, management, administrative and other resources.
Furthermore, Odetics had maintained substantial control over the operations of
the Company. Accordingly, the Company has had no recent history of operating as
an independent entity.
Prior to this Offering, Odetics provided the Company with significant
management functions and services, including treasury, accounting, tax, internal
audit, legal, human resources, sales and marketing and other support services.
The Company was charged and/or allocated expenses of $991,000, $1.1 million and
$933,000 for the years ended March 31, 1994, 1995 and 1996, respectively, and
$472,000 and $551,000 for the six months ended September 30, 1995 and 1996,
respectively. The costs of these services have been directly charged and/or
allocated using methods that the Company's management believes are reasonable.
Such charges and allocations are not necessarily indicative of the costs the
Company would have incurred to obtain these services had it been a separate
entity. Neither Odetics nor the Company has conducted any study or obtained any
estimates from third parties to determine what the cost of obtaining such
services from third parties may have been. See Note 3 of Notes to Consolidated
Financial Statements.
The Company will pay to Odetics the lesser of 40% of the net proceeds of
this Offering before deducting estimated offering expenses or $10 million to
repay the Company's obligation to Odetics. The Company will enter into a
Promissory Note payable to Odetics representing the balance of its obligation to
Odetics. Such note will accrue interest at the rate charged to Odetics by its
principal lender from time to time (8.25% as of November 30, 1996). See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Use of Proceeds."
The Company and Odetics have entered into a number of agreements for the
purpose of defining their continuing relationship. These agreements were
negotiated in the context of a parent-subsidiary relationship and therefore are
not the result of negotiations between independent parties. It is the intention
of the Company and Odetics that such agreements and the transactions provided
for therein, taken as a whole, should accommodate the parties' interests in a
manner that is fair to both parties, while continuing certain mutually
beneficial joint arrangements. The parties intend that such agreements and
transactions provide fair market value to them on terms no less favorable to the
Company as would otherwise be available from unaffiliated parties. Because of
the complexity of the various relationships between the Company and Odetics,
however, there can be no assurance that each of such agreements, or the
transactions provided for therein, will be effected on terms at least as
favorable to the Company as could have been obtained from unaffiliated third
parties. The agreements summarized in this section have been filed as exhibits
to the Registration Statement of which this Prospectus forms a part, and the
following summaries are qualified in their entirety by reference to the
agreements as filed. While these agreements will provide the Company with
certain benefits, the Company is only entitled to the ongoing assistance of
Odetics for a limited time and it may not enjoy benefits from its relationship
with Odetics beyond the term of the agreements. There can be no assurance that
the Company upon termination of such assistance from Odetics will be able to
provide adequately such services internally or obtain favorable arrangements
from third parties to replace such services. See "Risk Factors -- Absence of
History as Standalone Company and "-- Control by Odetics Pending the
Distribution."
Additional or modified arrangements and transactions may be entered into by
the Company and Odetics upon consummation of this Offering. Any such future
arrangements and transactions will be determined through negotiation between the
Company and Odetics. The Company has adopted a policy that all future agreements
between the Company and Odetics will be on terms that the Company believes are
no less favorable to the Company than the terms the Company believes would be
available from unaffiliated parties. In that regard, the Company intends to
follow the procedures provided by the Delaware General Corporation Law which
include a vote to affirm any such future agreements by a majority of the
Company's directors who are not employees of Odetics (even though such directors
may be less than a quorum). There can be no assurance that any such arrangements
or transactions will be the same as that which would be negotiated between
independent parties.
48
<PAGE> 50
The following is a summary of certain prospective arrangements between the
Company and Odetics.
SEPARATION AND DISTRIBUTION AGREEMENT
The Separation and Distribution Agreement sets forth the agreements between
the Company and Odetics with respect to the principal corporate transactions
required to effect the Separation, the Offering and the Distribution, and
certain other agreements governing the relationship among the parties
thereafter. To effect the Separation, Odetics sold or agreed to sell all assets
related to the business of the Company to the Company. The Company has assumed
or agreed to assume and has agreed faithfully to perform and fulfill all related
liabilities and obligations. All assets conveyed have been transferred for a
purchase price equal to their respective book values, calculated in accordance
with generally accepted accounting principles, which the parties believe is
equivalent to the fair market value thereof.
The Separation and Distribution Agreement provides that, subject to the
terms and conditions thereof, Odetics and the Company will take all reasonable
steps necessary and appropriate to cause all conditions to the Distribution to
be satisfied and to effect the Distribution. The Directors of Odetics will have
the sole discretion to determine the date of consummation of the Distribution.
Odetics has agreed to consummate the Distribution no later than December 31,
1997, subject to the satisfaction or waiver by its Board, in its sole
discretion, of the following conditions:
(i) a private letter ruling from the IRS shall have been obtained, and
shall continue in effect, to the effect that, among other things, the
Distribution will qualify as a tax free distribution for federal income tax
purposes under Section 355 of the Code, and such ruling shall be in form
and substance satisfactory to Odetics, in its sole discretion;
(ii) any material governmental approvals and consents necessary to
consummate the Distribution shall have been obtained and be in full force
and effect;
(iii) no order, injunction or decree issued by any court or agency of
competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the Distribution shall be in effect, and no other event
outside the control of Odetics shall have occurred or failed to occur that
prevents the consummation of the Distribution; and
(iv) no other events or developments shall have occurred that, in the
judgment of the Board of Directors of Odetics, would result in the
Distribution having a material adverse effect on Odetics or on its
stockholders.
Odetics has agreed to consummate the Distribution as promptly as
practicable following the satisfaction or waiver of all such conditions.
The Company and Odetics have agreed that, neither of the parties will take,
or permit any of their affiliates to take, any action which reasonably could be
expected to prevent the Distribution from qualifying as a tax free distribution
within the meaning of Section 355 of the Code. The parties have also agreed to
take any reasonable actions necessary for the Distribution to qualify as a tax
free distribution pursuant to Section 355 of the Code.
The Separation and Distribution Agreement also provides for a full and
complete release and discharge upon consummation of this Offering of all
liabilities existing or arising from all acts and events occurring or failing to
occur or alleged to have occurred or to have failed to occur and all conditions
existing or alleged to have existed on or before the Offering, between or among
the Company and its affiliates, on the one hand, and Odetics and its affiliates,
on the other hand (including any contractual agreements or arrangements existing
or alleged to exist between or among them on or before the Offering), except as
expressly set forth in the Separation and Distribution Agreement.
The Company has agreed to indemnify, defend and hold Odetics and its
affiliates harmless from and against all liabilities relating to, arising out of
or resulting from (i) the failure of the Company or any other person to pay,
perform or otherwise promptly discharge any Company liabilities in accordance
with their respective terms, (ii) the Company's business, or any contract of the
Company, (iii) any breach by the
49
<PAGE> 51
Company or of the Separation and Distribution Agreement or any ancillary
agreements, and (iv) any untrue statement or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
with respect to all information contained in this Prospectus or the Registration
Statement of which it forms a part.
Odetics has agreed to indemnify, defend and hold the Company and its
affiliates from and against all liabilities relating to, arising out of or
resulting from (i) the failure of Odetics or any other person to pay, perform or
otherwise promptly discharge any liabilities of Odetics, (ii) the business of
Odetics or any contract of Odetics, and (iii) any breach by Odetics or any of
its affiliates of the Separation and Distribution Agreement or any ancillary
agreements.
The Separation and Distribution Agreement also provides that during the
period prior to the Distribution, the Company will reimburse Odetics for its
proportionate share of premiums paid or accrued on insurance policies under
which the Company continues to have coverage.
SERVICES AGREEMENT
The Company and Odetics will enter into an administrative services
agreement (the "Services Agreement") upon consummation of this Offering,
pursuant to which Odetics will continue to provide limited services to the
Company, including treasury, accounting, tax, internal audit, legal and human
resources functions. The Company estimates its aggregate costs under the
Services Agreement for the fiscal year ended March 31, 1997 will be
approximately $500,000. The actual expenditures will depend on numerous factors,
some of which are beyond the Company's control. There can be no assurance that
the actual expenses will not be significantly greater than anticipated. See
"Risk Factors -- Absence of History as an Independent Entity; Limited Relevance
of Historical Financial Information."
TAX ALLOCATION AGREEMENT
The Company and Odetics will enter into a tax allocation agreement (the
"Tax Allocation Agreement") upon the consummation of this Offering, pursuant to
which the Company will make a payment to Odetics, or Odetics will make a payment
to the Company, as appropriate, of an amount in respect of taxes shown as due
attributable to the operations of the Company on the consolidated federal income
tax return and combined or consolidated state income or franchise tax returns
filed by Odetics for the short period commencing on April 1, 1997 and ending on
the date on which the Company ceases to be a member of the Odetics consolidated
group.
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<PAGE> 52
PRINCIPAL STOCKHOLDERS
Prior to the Offering, all of the outstanding shares of Common Stock will
be owned by Odetics. After the Offering, Odetics will own approximately 82.9% of
the Common Stock then outstanding (80.9% if the Underwriters' over-allotment
option is exercised in full). Except as described above, the Company is not
aware of any person or group who will beneficially own more than 1% of the
Common Stock following the Offering. The address for Odetics is 1515 South
Manchester Avenue, Anaheim, California 92802-2907.
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<PAGE> 53
DESCRIPTION OF SECURITIES
The Company's authorized capital stock consists of 45,000,000 shares of
Common Stock, $.0001 par value per share, 5,000,000 shares of Class B Common
Stock, $.0001 par value per share, and 5,000,000 shares of Preferred Stock,
$.0001 par value per share.
The following summary of certain provisions of the Company's securities
does not purport to be complete and is subject to, and qualified in its entirety
by, the provisions of the Company's Certificate of Incorporation, which is
included as an exhibit to the Registration Statement of which this Prospectus is
a part, and by the provisions of applicable law.
COMMON STOCK
The Company has authorized two classes of common stock. The rights,
preferences and privileges of each class of common stock are identical in all
respects except for voting rights. The Common Stock and the Class B Common Stock
are entitled to share equally in dividends from sources available therefor when,
and is as if declared by the Board of Directors. See "Dividend Policy." In the
event of a liquidation, dissolution or winding up of the Company, holders of
both classes of common stock would be entitled to share ratably in all assets
remaining after the payment of liabilities and the liquidation preference of any
then outstanding Preferred Stock. Holders of both classes of common stock have
no preemptive rights and no rights to convert their shares of either class of
common stock into any other securities. There are redemption rights or sinking
fund provisions applicable to either class of common stock. All shares of each
class of common stock are, and all shares to be sold and issued as contemplated
hereby will be, fully paid and nonassessable. The Board of Directors is
authorized to issue additional shares of each class of common stock within the
limits authorized by the Company's Certificate of Incorporation and without any
further stockholder action.
Class A Common Stock. As of December 19, 1996, 8,005,000 shares of Common
Stock were outstanding and held by Odetics. Each holder of Common Stock is
entitled to one vote for each share held of record on all matters submitted to a
vote of the stockholders.
Class B Common Stock. As of December 19, 1996, no shares of Class B Common
Stock were outstanding. Each holder of Class B Common Stock is entitled to .05
votes for each share held of record on all matters submitted to a vote of the
stockholders. The Company has granted options to purchase 879,000 shares of
Class B Common Stock under the 1996 Stock Incentive Plan and has reserved
options to purchase an additional 1,121,000 shares of Class B Common Stock under
such plan. See "Management -- 1996 Stock Incentive Plan."
PREFERRED STOCK
The Board of Directors has the authority, without further action by the
stockholders, to issue up to 5,000,000 shares of Preferred Stock in one or more
series and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, sinking fund terms and the number of shares
constituting any series or the designation of such series, without any further
vote or action by stockholders. The issuance of Preferred Stock could adversely
affect the voting power of holders of either class of common stock and the
likelihood that such holders will receive dividend payments and payments upon
liquidation and could have the effect of delaying, deferring or preventing a
change in control of the Company. The Company has no present plan to issue any
shares of Preferred Stock.
DELAWARE LAW
The Company is subject to the provisions of Section 203 of the Delaware
Law, an anti-takeover law. In general, the statute prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date that the
person became an interested stockholder unless (with certain exceptions) the
business combination or the transaction in which the person became an interested
stockholder is approved in a prescribed manner. Generally, a "business
combination"
52
<PAGE> 54
includes a merger, asset or stock sale, or other transaction resulting in a
financial benefit to the interested stockholder. Generally, an "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within three years prior, did own) 15% or more of a corporation's outstanding
voting stock. This provision may have the effect of delaying, deferring or
preventing a change in control of the Company without further action by the
stockholders.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is First
National Bank of Boston.
LISTING
The Company will apply to have the Common Stock approved for quotation on
the Nasdaq National Market under the symbol "ATLPA."
53
<PAGE> 55
SHARES ELIGIBLE FOR FUTURE SALE
The 1,650,000 shares sold in the Offering (1,895,000 if the Underwriters
exercise their over-allotment option in full) will be freely tradable without
restriction under the Securities Act of 1933, as amended (the "Securities Act")
except for any such shares which may be acquired by an "affiliate" of the
Company (an "Affiliate") as that term is defined in Rule 144 ("Rule 144")
promulgated under the Securities Act, which shares will remain subject to the
resale limitations of Rule 144.
The 8,005,000 shares of the Company's Common Stock that will continue to be
held by Odetics after the offering constitute "restricted securities" within the
meaning of Rule 144, and will be eligible for sale by Odetics in the open market
after the Offering, subject to certain contractual lockup provisions and the
applicable requirements of Rule 144, both of which are described below.
Generally, Rule 144 provides that a person who has beneficially owned
"restricted" shares of Common Stock for at least two years will be entitled to
sell on the open market in broker's transactions within any three month period a
number of shares that does not exceed the greater of (a) 1% of the then
outstanding shares of Common Stock and (b) the average weekly trading volume in
the Common Stock on the open market during the four calendar weeks preceding
such sale. Sales under Rule 144 are also subject to certain notice requirements
and the availability of current public information about the Company.
In the event that any person other than Odetics who is deemed to be an
Affiliate purchases Common Stock pursuant to the Offering or acquires Common
Stock pursuant to an employee benefit plan of the Company, the shares held by
such person are required under Rule 144 to be sold in broker's transactions,
subject to the volume limitations described above. Shares properly sold in
reliance upon Rule 144 to persons who are not Affiliates are thereafter freely
tradeable without restriction or registration under the Securities Act.
Sales of substantial amounts of the Common Stock in the open market, or the
availability of such shares for sale, could adversely affect prevailing market
prices. Odetics has advised the Company that, subject to certain conditions,
Odetics intends to distribute its ownership interest in the Company to Odetics'
shareholders in mid 1997. The shares to be distributed by Odetics will be
eligible for immediate resale in the public market without restrictions by
persons other than Affiliates of the Company because while no registration of
such shares will be made, holders who are not Affiliates will be able to sell
their shares without restriction pursuant to Section 4(l) of the Securities Act.
Any Affiliates would be subject to the restrictions of Rule 144 other than the
two year holding period requirement.
The Company and Odetics have agreed, subject to certain exceptions, not to
offer, sell, contract to sell or otherwise dispose of any shares of Common
Stock, or any securities convertible into or exercisable or exchangeable for
shares of Common Stock, for a period of 180 days after the date of this
Prospectus without the prior written consent of Montgomery Securities. See
"Underwriters."
54
<PAGE> 56
UNDERWRITING
The underwriters named below (the "Underwriters"), represented by
Montgomery Securities and Cruttenden Roth Incorporated (the "Representatives"),
have severally agreed, subject to the terms and conditions set forth in the
Underwriting Agreement, to purchase from the Company the number of shares of
Common Stock indicated below opposite their respective names at the initial
public offering price less the underwriting discount set forth on the cover page
of this Prospectus. The Underwriting Agreement provides that the obligations of
the Underwriters are subject to certain conditions precedent and that the
Underwriters are committed to purchase all of such shares, if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
------------------------------------------------------------------------ ---------
<S> <C>
Montgomery Securities...................................................
Cruttenden Roth Incorporated............................................
---------
Total......................................................... 1,650,000
========
</TABLE>
The Representatives have advised the Company that the Underwriters
initially propose to offer the Common Stock to the public on the terms set forth
on the cover page of this Prospectus. The Underwriters may allow to selected
dealers a concession of not more than $ per share; and the Underwriters
may allow, and such dealers may reallow, a concession of not more than
$ per share to certain other dealers. After the initial public
offering, the offering price and other selling terms may be changed by the
Representatives. The Common Stock is offered subject to receipt and acceptance
by the Underwriters, and to certain other conditions, including the right to
reject orders in whole or in part.
The Company has granted an option to the Underwriters, exercisable for 30
calendar days after the date of this Prospectus, to purchase up to a maximum of
245,000 additional shares of Common Stock, solely to cover over-allotments. If
the Underwriters exercise this over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by each of
them, as shown in the foregoing table, bears to the 1,650,000 shares of Common
Stock offered hereby. The Underwriters may exercise such option only to cover
over-allotments made in connection with the sale of the 1,650,000 shares of
Common Stock.
The Company and its executive officers and directors and Odetics have
agreed not to offer, sell, contract to sell or dispose of any shares of Common
Stock or any securities convertible into or exchangeable for any shares of
Common Stock for a period of 180 days after the date of this Prospectus without
the prior written consent of Montgomery Securities, except for securities issued
pursuant to its stock option plans. Montgomery Securities may, in its sole
discretion and at any time without notice, release all or any portion of the
securities subject to these lock-up agreements.
The Underwriting Agreement provides that the Company has agreed to
indemnify the several Underwriters and their controlling persons against certain
liabilities, including liabilities under the Securities Act.
The Representatives have advised the Company that it does not intend to
confirm sales to discretionary accounts by the Underwriters in excess of 5% of
the total number of shares of Common Stock offered by them.
Prior to this Offering, there has been no public market for the Common
Stock. The initial public offering price will be negotiated between the Company
and the Representatives. Among the factors to be considered in determining the
initial public offering price of the Common Stock, in addition to prevailing
market conditions, are the Company's historical performance, estimates of the
business potential and earnings prospects of the Company, an assessment of the
Company's management and the consideration of the above factors in relation to
market valuation of companies in related businesses.
55
<PAGE> 57
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Brobeck, Phleger & Harrison LLP, Newport Beach,
California. Certain legal matters relating to the Offering will be passed upon
for the Underwriters by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, Palo Alto, California.
EXPERTS
The financial statements and schedules of the Company at March 31, 1996 and
1995, and for each of the three years in the period ended March 31, 1996,
included in this Prospectus and the Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their reports thereon
appearing elsewhere herein and in the Registration Statement, and are included
in reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement on Form S-1 under the
Securities Act with respect to the Common Stock offered hereby. This Prospectus
does not contain all of the information set forth in the Registration Statement
and the exhibits and schedules thereto. Certain items are omitted in accordance
with the rules and regulations of the Commission. For further information with
respect to the Company and the Common Stock, reference is made to the
Registration Statement and the exhibits and schedules filed therewith.
Statements contained in this Prospectus as to the contents of any contract of
other document referred to are not necessarily complete, and in each instance,
if such contract or document is filed as an exhibit, reference is made to the
copy of such contract or other document filed as an exhibit to the Registration
Statement, each statement being qualified in all respects by such reference. A
copy of the Registration Statement, including the exhibits and schedules
thereto, may be inspected without charge at the public reference facilities
maintained by the Commission in Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's regional offices located at 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, Suite
1300, New York, New York 10048, and copies of all or any part thereof. The
Registration Statement may be obtained from such office upon the payment of fees
prescribed by the Commission. Such material may also be accessed electronically
by means of the Commission's home page on the Internet at http://www.sec.gov.
The Company intends to furnish its stockholders with annual reports
containing financial statements which will be audited by its independent
auditors, and such other periodic reports as the Company may determine to be
appropriate or as may be required by law.
56
<PAGE> 58
ATL PRODUCTS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Financial Statements of ATL Products, Inc.
Report of Ernst & Young LLP, Independent Auditors.................................. F-2
Consolidated Balance Sheets as of March 31, 1995 and 1996 and September 30, 1996
(unaudited)..................................................................... F-3
Consolidated Statements of Operations for the years ended March 31, 1994, 1995 and
1996 and for the six months ended September 30, 1995 and 1996 (unaudited)....... F-4
Consolidated Statements of Net Capital Deficiency for the years ended March 31,
1994, 1995 and 1996 and for the six months ended September 30, 1995 and 1996
(unaudited)..................................................................... F-5
Consolidated Statements of Cash Flows for the years ended March 31, 1994, 1995 and
1996 and for the six months ended September 30, 1995 and 1996 (unaudited)....... F-6
Notes to Consolidated Financial Statements......................................... F-7
Financial Statements of ATL Customer Service
Report of Ernst & Young LLP, Independent Auditors.................................. F-13
Statements of Income for the year ended March 31, 1996 and for the six months ended
September 30, 1996 (unaudited).................................................. F-14
Notes to Statements of Income...................................................... F-15
Unaudited Pro Forma Consolidated Financial Information............................... F-16
Unaudited Pro Forma Consolidated Balance Sheet at September 30, 1996............... F-17
Unaudited Pro Forma Consolidated Statement of Income for the six months ended
September 30, 1996.............................................................. F-18
Unaudited Pro Forma Consolidated Statement of Income for the year ended March 31,
1996............................................................................ F-19
Notes to Unaudited Pro Forma Consolidated Financial Statements..................... F-20
</TABLE>
F-1
<PAGE> 59
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Stockholder and Board of Directors
ATL Products, Inc.
We have audited the accompanying consolidated balance sheets of ATL
Products, Inc. (the Company), a wholly-owned subsidiary of Odetics, Inc.
(Parent), as of March 31, 1995 and 1996, and the related consolidated statements
of operations, net capital deficiency, and cash flows for each of the three
years in the period ended March 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As more fully described in Note 2, the Company has material transactions
with its Parent and affiliates.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
ATL Products, Inc. at March 31, 1995 and 1996, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended March 31, 1996, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
Orange County, California
November 20, 1996,
except for Note 10, as to which the date is
December 19, 1996
F-2
<PAGE> 60
ATL PRODUCTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ODETICS, INC.)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31,
-------------------- SEPTEMBER 30,
1995 1996 1996
------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.................................................... $ 1 $ 1 $ 1
Trade accounts receivable, net of allowance for doubtful
accounts of $627 in March 1995, $662 in March 1996
and $139 in September 1996........................... 3,599 9,388 7,226
Inventories:
Finished goods....................................... 1,180 1,886 2,278
Work in process...................................... 347 487 986
Materials and supplies............................... 2,757 2,264 3,693
Prepaid expenses and other.............................. 103 62 77
------- -------- -------
Total current assets............................ 7,987 14,088 14,261
Leasehold improvements and equipment:
Leasehold improvements.................................. 356 -- --
Equipment............................................... 2,078 2,609 3,312
Allowances for depreciation............................. (1,282) (1,409) (1,628)
------- -------- -------
1,152 1,200 1,684
------- -------- -------
Total assets.............................................. $ 9,139 $ 15,288 $15,945
======= ======== =======
LIABILITIES AND NET CAPITAL DEFICIENCY
Current liabilities:
Trade accounts payable.................................. $ 1,259 $ 4,073 $ 4,187
Accrued payroll and related............................. 367 786 731
Income taxes payable.................................... -- -- 1,023
Other accrued expenses.................................. 93 240 555
Payable to Parent (Note 2).............................. 16,258 20,302 18,028
------- -------- -------
Total current liabilities....................... 17,977 25,401 24,524
Commitments and contingencies (Note 7 and 10)
Net capital deficiency (Notes 6 and 10):
Preferred stock, .0001 par value:
Authorized shares -- 5,000,000
Issued and outstanding shares -- none
Common stock, .0001 par value:
Authorized shares -- 45,000,000 Class A;
5,000,000 Class B
Issued and outstanding shares -- 8,005,000
Class A at March 31, 1995 and 1996 and
September 30, 1996; no Class B..................... 1 1 1
Additional paid in capital........................... 1,009 1,009 1,009
Accumulated deficit..................................... (9,848) (11,123) (9,589)
------- -------- -------
Net capital deficiency.................................... (8,838) (10,113) (8,579)
------- -------- -------
Total liabilities and net capital deficiency.............. $ 9,139 $ 15,288 $15,945
======= ======== =======
</TABLE>
See accompanying notes.
F-3
<PAGE> 61
ATL PRODUCTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ODETICS, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
------------------------------ -----------------
1994 1995 1996 1995 1996
-------- -------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales:
Net product sales........................... $ 15,534 $ 15,445 $ 18,076 $ 5,187 $22,183
Sales to affiliates (Note 2)................ 655 3,074 5,860 1,721 1,466
-------- -------- -------- -------- -------
Total net sales..................... 16,189 18,519 23,936 6,908 23,649
Cost of sales:
Product sales............................... 12,398 12,539 12,205 3,820 13,994
Sales to affiliate (Note 2)................. 406 1,884 3,996 1,157 974
-------- -------- -------- -------- -------
Total cost of sales................. 12,804 14,423 16,201 4,977 14,968
Gross profit.................................. 3,385 4,096 7,735 1,931 8,681
Expenses:
Research and development.................... 2,285 3,248 1,731 867 1,695
Sales and marketing......................... 1,308 1,838 2,648 811 2,515
General and administrative.................. 621 701 677 306 546
Charges allocated by Parent (Note 2)........ 991 1,061 933 472 551
Nonrecurring charge (Note 3)................ -- 3,513 1,392 457 --
-------- -------- -------- -------- -------
Income (loss) from operations................. (1,820) (6,265) 354 (982) 3,374
Interest charge allocated by Parent........... 391 1,025 1,629 780 817
-------- -------- -------- -------- -------
Income (loss) before income taxes............. (2,211) (7,290) (1,275) (1,762) 2,557
Income taxes (Note 4)......................... -- -- -- -- 1,023
-------- -------- -------- -------- -------
Net income (loss)............................. $ (2,211) $ (7,290) $ (1,275) $(1,762) $ 1,534
======== ======== ======== ======== =======
Net income (loss) per share (Note 1).......... $ (.26) $ (.86) $ (.15) $ (.21) $ .18
======== ======== ======== ======== =======
Shares used in computation of income (loss)
per share................................... 8,484 8,484 8,484 8,484 8,484
======== ======== ======== ======== =======
</TABLE>
See accompanying notes.
F-4
<PAGE> 62
ATL PRODUCTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ODETICS, INC.)
CONSOLIDATED STATEMENTS OF NET CAPITAL DEFICIENCY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------- PAID IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
----- ------ ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1993....................... 8,005 $1 $1,009 $ (347) $ 663
Net loss...................................... -- -- -- (2,211) (2,211)
----- -- ------ ------- -------
Balance at March 31, 1994....................... 8,005 1 1,009 (2,558) (1,548)
Net loss...................................... -- -- -- (7,290) (7,290)
----- -- ------ ------- -------
Balance at March 31, 1995....................... 8,005 1 1,009 (9,848) (8,838)
Net loss...................................... -- -- -- (1,275) (1,275)
----- -- ------ ------- -------
Balance at March 31, 1996....................... 8,005 1 1,009 (11,123) (10,113)
Net income (unaudited)........................ -- -- -- 1,534 1,534
----- -- ------ ------- -------
Balance at September 30, 1996................... 8,005 $1 $1,009 $ (9,589) $ (8,579)
===== == ====== ======= =======
</TABLE>
See accompanying notes.
F-5
<PAGE> 63
ATL PRODUCTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ODETICS, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
--------------------------- -----------------
1994 1995 1996 1995 1996
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)................................ $(2,211) $(7,290) $(1,275) $(1,762) $ 1,534
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization.................. 330 490 483 238 219
Provision for losses on accounts receivable.... 75 648 38 19 73
Write-down of inventories...................... -- 2,015 -- -- --
Changes in operating assets and liabilities
(Note 9).................................... (3,343) (1,648) (2,759) (763) 1,151
------- ------- ------- ------- ------
Net cash provided by (used in) operating
activities..................................... (5,149) (5,785) (3,513) (2,268) 2,977
INVESTING ACTIVITIES
Purchases of property, plant and equipment....... (923) (315) (531) (113) (703)
------- ------- ------- ------- ------
Net cash used in investing activities............ (923) (315) (531) (113) (703)
FINANCING ACTIVITIES
Net cash received from (paid to) Parent.......... 6,072 6,100 4,044 2,381 (2,274)
------- ------- ------- ------- ------
Net cash provided by (used in) financing
activities..................................... 6,072 6,100 4,044 2,381 (2,274)
------- ------- ------- ------- ------
Net change in cash............................... -- -- -- -- --
Cash at beginning of period...................... 1 1 1 1 1
------- ------- ------- ------- ------
Cash at end of period............................ $ 1 $ 1 $ 1 $ 1 $ 1
======= ======= ======= ======= ======
</TABLE>
See accompanying notes.
F-6
<PAGE> 64
ATL PRODUCTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ODETICS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
ATL Products, Inc. (the Company), a wholly owned subsidiary of Odetics,
Inc. (the Parent), designs, manufactures and markets systems that automate the
management of removable tape cartridge volumes used for data storage in
distributed computing environments. The Company's customers are original
equipment manufacturers, value added resellers and storage system integrators
located primarily in North America and Europe. In fiscal 1997 the Company formed
a wholly owned subsidiary, ATL Products Limited (APL), which effective July 1,
1996 distributes the Company's products in Europe.
Basis of Presentation
The accompanying financial statements include the accounts of the Company
and its subsidiary, APL. Intercompany balances and transactions have been
eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Significant estimates made in preparing the consolidated financial statements
include the allowance for doubtful accounts, inventory reserves and income tax
valuation allowances.
Revenue Recognition
Sales and related cost of sales are recognized on the date of shipment or,
if required, upon acceptance by the customer.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and short-term investments with
initial maturities of less than ninety days.
Fair Values of Financial Instruments
Fair values of cash and cash equivalents approximate the carrying value
because of the short period of time to maturity. The fair value of amounts
payable to Parent approximates its carrying value because interest charges
thereon are based on the prevailing market rates of interest charged to the
Parent under related borrowings.
Inventory Valuation
Inventories are stated at the lower of cost or market. Cost is determined
on the first-in, first-out method.
Leasehold Improvements and Equipment
Leasehold improvements and equipment are recorded at cost. Leasehold
improvements are amortized on a straight-line basis over the life of the lease.
Equipment is depreciated principally by the declining balance method over
estimated useful lives (four to eight years).
Long-Lived Assets
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of (SFAS No. 121), in March 1995. SFAS
No. 121 requires long-lived assets and certain intangibles held and
F-7
<PAGE> 65
ATL PRODUCTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ODETICS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
used by the Company to be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The recoverability test is to be performed at the lowest level at
which undiscounted net cash flows can be directly attributable to long-lived
assets. SFAS No. 121 is effective for fiscal years beginning after December 15,
1995. The Company plans to adopt SFAS No. 121 in fiscal 1997 and has determined
that there will be no material effect on the Company's financial statements upon
adoption.
Stock Compensation
In November 1995, the Financial Accounting Standards Board issued Statement
No. 123 Accounting for Stock Based Compensation (FAS 123). The Company has
elected to continue accounting for stock options under APB No. 25 Accounting for
Stock Issued to Employees and adopt the pro forma disclosure provisions of FAS
123. The adoption of FAS 123 would not have a material effect on the Company's
financial position or results of operations for the year ended March 31, 1996.
Earnings Per Share
Earnings per share is computed using the weighted average number of shares
of common stock and common stock equivalents outstanding during the year. In
accordance with the accounting rules of the Securities and Exchange Commission,
stock options issued by the Company in the twelve month period prior to the
Company's initial public offering have been included in the calculation of
common and common equivalent shares as if they were outstanding for all periods
presented, computed using the treasury stock method and the assumed initial
offering price.
Research and Development Expenditures
Research and development expenditures are charged to expense in the period
incurred, and totaled $2,285,000, $3,248,000 and $1,731,000 in 1994, 1995 and
1996, respectively.
Advertising Expenses
The Company expenses advertising costs as incurred. Advertising expenses
totaled $31,000, $106,000 and $121,000 in 1994, 1995 and 1996, respectively.
Income Taxes
The Company is included in the consolidated federal income tax return with
its Parent. The Company and the Parent have entered into a tax sharing
arrangement whereby income taxes are computed in accordance with consolidated
return Section 1552(a)(1). Under this allocation, the consolidated tax liability
for a given tax year is allocated only to companies in the group which have
separate taxable income for that year. The tax liability is allocated pro rata
based on each Company's relative separate taxable income. Company's with losses
are not allocated any of the tax liability and are not given any benefit for
their losses.
Deferred income tax assets and liabilities are computed for differences
between the financial statement and tax basis of assets and liabilities based on
enacted tax laws and rates applicable to the period in which differences are
expected to affect taxable income. Valuation allowances are established, when
necessary, to reduce deferred tax assets to amounts which are more likely than
not to be realized. The provision for income taxes consists of the taxes payable
or refundable for the period plus or minus the change during the period in
deferred income tax assets and liabilities.
Interim Financial Information
The financial statements for the six months ended September 30, 1995 and
1996 are unaudited, but include all adjustments (consisting of only normal
recurring adjustments) which the Company considers
F-8
<PAGE> 66
ATL PRODUCTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ODETICS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
necessary for a fair statement of the financial position and the operating
results and cash flows for the interim periods. Results for the interim periods
are not necessarily indicative of results to be expected for the entire year.
2. TRANSACTIONS WITH PARENT AND AFFILIATES
Prior to APL assuming responsibility for the Company's sales in Europe on
July 1, 1996, the Company distributed its products in Europe through a wholly
owned subsidiary of the Parent, Odetics Europe, Ltd (OEL). Sales to OEL were
consummated at prices and terms agreed upon annually and totaled $0, $453,000
and $4,742,000 for the year ended March 31, 1994, 1995 and 1996, respectively,
and $1,186,000 and $1,466,000 for the six month periods ended September 30, 1995
and 1996 (unaudited), respectively.
Through March 31, 1996, the Company paid the Odetics Customer Service
division of the Parent (OCS) a fee to assume warranty responsibility for its
product sales. Beginning April 1, 1996, the Company retained its warranty
liability and subcontracted with OCS to perform warranty related services on a
fee for service basis. Payments to OCS to assume warranty responsibility totaled
$384,000, $298,000 and $325,000 for the years ended March 31, 1994, 1995 and
1996, respectively, and $106,000 and $0 for the six month periods ended
September 30, 1995 and 1996 (unaudited), respectively. Service parts and stock
sales to OCS totaled approximately $655,000, $2,621,000 and $1,118,000 for the
years ended March 31, 1994, 1995 and 1996, respectively, and $535,000 and
$514,000 for the six month periods ended September 30, 1995 and 1996
(unaudited), respectively, on which the Company recorded gross profit of
$249,000, $1,057,000, $313,000, $203,000 and $0, respectively.
During fiscal 1994 and 1995 the Company purchased components for certain
discontinued products from the Odetics Broadcast Division of its Parent.
Component purchases from affiliates totaled $1,576,000 and $1,196,000 for the
years ended March 31, 1994 and 1995, respectively.
The Company and its Parent have entered into an agreement whereby the
Parent charges the Company for certain corporate general and administrative
functions performed by the Parent. These services include, but are not limited
to, administration of employee incentive programs, marketing, facilities, legal,
payroll and other general administrative services. Charges are allocated to the
Company based on actual amounts incurred on behalf of the Company or agreed upon
amounts or percentages.
The Parent also manages consolidated domestic cash flows. Pursuant to this
cash management program the Company transfers any accumulated cash surplus to
the Parent's accounts and the Parent funds cash disbursements, as needed, to
maintain minimum account balances. The Company and its Parent have entered into
an agreement whereby the Parent charges the Company interest based on the
Company's net payable to the Parent balance calculated using the Parent's cost
of related borrowed funds (8.25% at March 31, 1996).
The net payable to Parent represents the net of the following transactions:
cash advances to and from the Parent in connection with cash management policy;
proceeds from sales to affiliates; payments for purchases from affiliates; and
corporate charges for general corporate overhead and interest.
3. NONRECURRING CHARGES
In December 1994, the Company recorded nonrecurring charges of $3,513,000
related to downsizing and restructuring in response to a deterioration in the
Company's contractual relationship with E-Systems, Inc., which was then a major
customer. The fiscal 1995 charges consisted of a $3,165,000 write-down of
inventories and accounts receivable to net realizable value, $283,000 of
severance costs and other charges and $65,000 of legal fees. In fiscal 1996 the
Company incurred an additional $1,392,000 of legal fees associated with the
E-Systems dispute (Note 7).
F-9
<PAGE> 67
ATL PRODUCTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ODETICS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. INCOME TAXES
As a result of its tax sharing agreement with the Parent (Note 1), the
Company has received no tax benefit from its losses and through March 31, 1996
has not paid or accrued federal or state income taxes. The Company's taxable
losses through March 31, 1996 have been used to offset the Parent's taxable
income for such periods and as a result are not available to provide any tax
benefit in future periods.
The components of the Company's deferred tax liabilities and assets are as
follows:
<TABLE>
<CAPTION>
1994 1995 1996
----- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax liabilities:
Tax over book depreciation.................................... $ (20) $ -- $ (24)
----- ------- -------
Total deferred tax liabilities........................ (20) -- (24)
Deferred tax assets:
Inventory reserves............................................ 25 1,240 1,369
Deferred compensation and other payroll....................... 155 140 145
Bad debt reserve.............................................. 30 252 266
Other......................................................... -- 14 12
----- ------- -------
Total deferred tax assets............................. 210 1,646 1,792
Valuation allowance for deferred tax assets..................... (190) (1,646) (1,768)
----- ------- -------
Net deferred tax assets......................................... 20 -- 24
----- ------- -------
Net deferred tax assets (liabilities)........................... $ -- $ -- $ --
====== ======= =======
</TABLE>
Any future benefits recognized from the reduction of the valuation
allowance will result in a reduction of income tax expense.
The Company expects to report taxable income in the year ending March 31,
1997 and therefore has provided pro forma income taxes at a combined estimated
effective tax rate of 40% for the six month period ended September 30, 1996. If
the Company had filed separate income tax returns in prior years, its taxable
loss carryforwards would have been available to offset anticipated income and,
therefore, no provision for federal income taxes would have been necessary.
5. ASSOCIATE INCENTIVE PROGRAMS
Under the terms of the Parent's Profit Sharing Plan, the Company
contributes to a trust fund such amounts as are determined annually by the
Company's Board of Directors. No contributions were made in 1994, 1995 or 1996.
The Company's employees participate in the Parent's 401(k) Plan. Under the
401(k) Plan, eligible employees voluntarily contribute to the plan up to 15% of
their salary through payroll deductions. The Company matches 50% of
contributions up to a stated limit. Under the provisions of the 401(k) Plan,
employees have four investment choices, one of which is the purchase of Odetics,
Class A common stock at market price. Company matching contributions were
approximately $37,000, $82,000 and $80,000 in 1994, 1995 and 1996, respectively.
The Company's employees with more than six months of eligible service
participate in the Parent's noncontributory Associate Stock Ownership Plan
(ASOP). The ASOP provides that Company contributions, which are determined
annually by the Board of Directors, may be in the form of cash or shares of the
Parent's stock. The Company contributions to the ASOP were approximately
$71,000, $0 and $68,000 in 1994, 1995 and 1996, respectively.
F-10
<PAGE> 68
ATL PRODUCTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ODETICS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. STOCK OPTION AND DEFERRED COMPENSATION PLANS
The Company participates in its Parent's Associate Stock Option Plan which
provides that options for shares of the Parent's unissued Class A common stock
may be granted to employees of the Company. Options granted enable the option
holder to purchase shares of Odetics Class A common stock at prices which are
equal to or greater than the fair market value of the shares at the date of
grant. Options for shares have been granted at prices ranging from $4.38 to
$9.00 per share of the Parent's Class A common stock representing in each case
the fair market value at the date of grant. Options expire ten years after date
of grant or 90 days after termination of employment and vest ratably at 33% or
25% on each of the first three or four anniversaries of the grant date,
respectively, depending on the date of grant.
Certain executives of the Company participate in the Parent's Executive
Deferral Plan under which a portion of their annual compensation may be
deferred. The plan guarantees each executive a minimum annual return of 10% for
deferred amounts up to $20,000 annually through 1994. Effective April 1, 1994,
all subsequent deferred amounts and previous annual amounts in excess of $20,000
have no guaranteed rate of return. Compensation charged to operations and
deferred under the plan totaled $20,000, $20,000 and $20,000 for 1994, 1995 and
1996, respectively.
7. COMMITMENTS AND CONTINGENCIES
In November 1994 Odetics and the Company initiated litigation related to
cancellation of purchase orders for ATL Product's DataLibrary and DataTower
products by E-Systems, Inc. In February 1995, E-Systems countersued Odetics and
the Company. In May 1996, the parties entered into a settlement agreement under
which, among other things, E-Systems agreed to pay $6,160,000 in settlement of
the litigation, and all claims asserted by the parties were released and the
litigation dismissed. In addition, the parties agreed to an equitable
disposition of disputed inventory and entered into a five year service agreement
for Odetics to assume the responsibility to service units that had been sold to
E-Systems at agreed upon prices. The Company has not recorded any material gain
or loss based on the terms of the settlement agreement.
The Company and its Parent are co-borrower and cross-guarantor under loan
agreement with the Parent's banks. The maximum credit facility is $17.0 million
of which $10.7 million was outstanding at March 31, 1996 ($9.1 million
(unaudited) at September 30, 1996).
8. SEGMENT AND SIGNIFICANT CUSTOMER AND SUPPLIER INFORMATION
The Company operates in one industry segment in which it designs, develops,
manufactures and markets products for specialized information automation
applications. The Company's principal products include magnetic tape cartridge
and cassette handling systems for automated tape library systems used in
computer mass data storage applications.
The Company performs periodic credit evaluations of its customers'
financial condition and generally does not require collateral. Credit losses
have been within management's expectations and within amounts provided through
the allowances for doubtful accounts. to major customers in 1994, 1995 and 1996,
and the related accounts receivable balances at March 31, 1996 are as follows:
<TABLE>
<CAPTION>
SALES
------------------------------------- RECEIVABLE BALANCE
CUSTOMER 1994 1995 1996 AT MARCH 31, 1996
- -------- --------- --------- --------- ------------------
<S> <C> <C> <C> <C>
A 1,950,000 4,439,000 4,819,000 1,570,000
B 6,183,000 6,521,000 -- 2,299,000
C 3,372,000 -- -- --
</TABLE>
No other customer represented more than 10% of the Company's annual sales.
F-11
<PAGE> 69
ATL PRODUCTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ODETICS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
An integral component of the Company's products is a data library tape
drive that is available from a single supplier. Demand for the supplier tape
drives is high and it is possible that in the near term the supply of tape
drives could be disrupted. Any disruption of the supply of tape drives would
cause delays in production that may be detrimental to the Company's financial
performance.
Export sales to all foreign customers, other than to OEL (Note 2),
principally in Canada and Australia, were approximately $22,000, $811,000 and
$1,389,000 during 1994, 1995 and 1996, respectively.
9. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
----------------------------- ------------------
1994 1995 1996 1995 1996
------- ------- ------- ------- -------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in) changes in
operating assets and liabilities:
(Increase) decrease in accounts
receivable.............................. $(1,988) $ (10) $(5,827) $(1,136) $ 2,089
(Increase) in inventories.................. (2,494) (1,256) (353) (527) (2,320)
(Increase) decrease in prepaid expenses and
other assets............................ (40) (17) 41 62 (15)
Increase (decrease) in accounts payable and
accrued expenses........................ 1,179 (365) 3,380 838 1,397
------ ------ ------ ------ ------
Net cash provided by (used in) changes in
operating assets and liabilities........... $(3,343) $(1,648) $(2,759) $ (763) $ 1,151
====== ====== ====== ====== ======
</TABLE>
10. SUBSEQUENT EVENTS
On December 19, 1996, the Company was reincorporated as a Delaware
corporation and effected a recapitalization in which two classes of common stock
were authorized, consisting of 45,000,000 shares of Class A common stock and
5,000,000 shares of Class B common stock, and each share of the Company's no par
common stock was recapitalized into 8,005 shares of Class A common stock, par
value $.0001 per share. All share and per share information included in the
accompanying financial statements has been restated to reflect the
reincorporation and the stock split. Class A and Class B common stock are
identical in all respects except voting rights. The Class A common stock has one
vote per share while Class B common stock has .05 of one vote per share.
The Company's Board of Directors and its Parent have adopted and approved
the ATL Products, Inc. 1996 Stock Incentive Plan (the Plan), authorized
2,000,000 shares of the Company's Class B common stock for issuance under the
Plan, and granted thereunder options to purchase 879,000 shares of Class B
common stock at an exercise price of $5.00 per share. Under terms of the Plan,
eligible key employees, directors and consultants can receive options to
purchase shares of the Company's common stock at prices not less than 100% for
incentive stock options and not less than 85% for nonqualified stock options of
the fair value on the date of grant as determined by the Board of Directors.
Stock options granted under the Plan may be exercisable over a maximum term of
ten years from the date of grant. The options granted on December 19, 1996 vest
over a three year period, and none are exercisable as of December 19, 1996.
F-12
<PAGE> 70
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Stockholder and Board of Directors
ATL Products, Inc.
We have audited the accompanying statement of income of ATL Customer
Service (a subdivision of Odetics, Inc.[Parent]) for the year ended March 31,
1996. This statement of income is the responsibility of ATL Customer Service's
management. Our responsibility is to express an opinion on this statement of
income based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of income is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statement of income. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall statement of income presentation.
We believe that our audit provides a reasonable basis for our opinion.
As more fully described in Note 3, the Company has material transactions
with its Parent and affiliates.
In our opinion, the statement of income referred to above presents fairly,
in all material respects, the results of operations of ATL Customer Service for
the year ended March 31, 1996, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
Orange County, California
December 6, 1996
F-13
<PAGE> 71
ATL CUSTOMER SERVICE
(A SUBDIVISION OF ODETICS, INC.)
STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR SIX MONTHS
ENDED ENDED
MARCH 31, SEPTEMBER 30,
1996 1996
--------- -------------
(UNAUDITED)
<S> <C> <C>
Net service revenue.................................................. $ 4,615 $ 2,854
Cost of services..................................................... 3,181 1,138
------ ------
Gross profit......................................................... 1,434 1,716
Expenses:
Sales and marketing................................................ 71 49
General and administrative......................................... 621 267
Charges allocated by Parent........................................ 602 185
------ ------
Income before income taxes........................................... 140 1,215
Income taxes......................................................... 53 486
------ ------
Net income........................................................... $ 87 $ 729
====== ======
</TABLE>
See accompanying notes.
F-14
<PAGE> 72
ATL CUSTOMER SERVICE
(A SUBDIVISION OF ODETICS, INC.)
NOTES TO STATEMENTS OF INCOME
YEAR ENDED MARCH 31, 1996
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Effective November 30, 1996, ATL Products, Inc. (ATL) purchased from
Odetics, Inc. (the Parent), the net assets of ATL Customer Service (ACS), a
subdivision of Odetics Customer Service, which in turn is a division of Odetics.
ACS provides third-party on-site computer maintenance services for the Parent as
well as maintenance and support services for ATL. The Division's principal
customers include the U.S. Department of Defense, FMC Corporation, General
Dynamics Corporation and Northrop Corporation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Significant estimates made in preparing the financial statements include
allowance for doubtful accounts and inventory reserves.
Revenue Recognition
Revenue under service contracts is recorded over the term of the contract.
Service revenue and related cost of services are recognized at the date of
service. Revenue is recognized from sales of service parts and stock when
shipments are made.
Inventory Valuation
Inventories of service parts and stock are stated at the lower of cost
(first-in, first-out) or market.
Depreciation
Equipment is depreciated principally by the declining balance method over
its estimated useful lives (four to eight years).
Advertising Expenses
Advertising expenses of $34,000 for the year ended March 31, 1996 are
expensed as incurred.
3. TRANSACTIONS WITH ATL AND PARENT
ACS assumed certain warranty liabilities of ATL totaling $325,000 during
the year ended March 31, 1996. ACS also purchased service parts and stock from
ATL totaling $1,118,000 and $514,000 (unaudited), for the year ended March 31,
1996 and the six months ended September 30, 1996, respectively.
The Parent charges ACS for certain corporate general and administrative
functions performed by the Parent. These services include, but are not limited
to, administrative of associate incentive programs, marketing, facilities,
legal, payroll and other general administrative services. Charges are allocated
to ACS based on actual amounts incurred on behalf of ACS or agreed upon amounts
or percentages.
4. INCOME TAXES
ACS is included in the consolidated tax return filed by the Parent. The
provision for income taxes has been calculated as if ACS filed its own tax
return on a separate return basis and includes the effects of changes during the
period in deferred income tax assets and liabilities.
F-15
<PAGE> 73
ATL PRODUCTS, INC.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
In connection with this offering of the Company's Class A common stock, the
Company assumed responsibility for the sale of its products in Europe effective
July 1, 1996 by establishing its own wholly owned subsidiary, and, effective
December 31, 1996, will acquire at book value that portion of Odetics' business
previously conducted by ATL Customer Service (ACS) that provides worldwide
service and support for the Company's products. Prior to such effective dates
these businesses were conducted by ACS, and the Company sold systems and spare
parts to ACS at intercompany transfer prices.
The following unaudited pro forma consolidated balance sheet of the Company
as of September 30, 1996 is presented as if the Company had purchased ACS at
that date.
The following unaudited pro forma consolidated statements of income for the
six months ended September 30, 1996 and for the year ended March 31, 1996 have
been prepared as if (1) the Company had formed ATL Products Limited (APL) at the
beginning of each period presented and processed all European sales through that
subsidiary, and (2) the Company had purchased ACS at the beginning of each of
the periods presented.
The information with respect to the Company in the following unaudited pro
forma statements has been derived from the consolidated financial statements of
the Company appearing elsewhere in this Prospectus. The information with respect
to the statement of income of ACS has been derived from the financial statements
of ACS, also included elsewhere in this Prospectus. The information with respect
to the balance sheet of ACS has been derived from the unaudited balance sheet of
ACS as of September 30, 1996. The information with respect to the statement of
income for APL has been derived from the unaudited income statement of Odetics
Europe, Ltd. for the three months ended June 30, 1996 and for the year ended
March 31, 1996. The pro forma adjustments necessary to present fairly the
Company's pro forma results of operations and financial position and are based
on available information and certain assumptions considered reasonable in the
circumstances.
The pro forma consolidated financial information should be read in
conjunction with the historical consolidated financial statements of the Company
and notes thereto and management's discussion thereof contained elsewhere in
this Prospectus. The pro forma operating results are not necessarily indicative
of actual operating results that would have occurred had the transactions
occurred as of the beginning of the period indicated, nor do they purport to
indicate the results of operations as of any future date or period.
F-16
<PAGE> 74
ATL PRODUCTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ODETICS, INC.)
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
ATL ATL
PRODUCTS, INC. CUSTOMER PRO FORMA PRO FORMA
HISTORICAL SERVICE ADJUSTMENTS CONSOLIDATED
-------------- -------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash............................................ $ 1 $ 1
Trade accounts receivable....................... 7,226 $1,258 8,484
Inventories..................................... 6,957 1,447 8,404
Prepaid expenses and other...................... 77 14 91
------- ------ ------- -------
Total current assets.................... 14,261 2,719 16,980
Leasehold improvements and equipment:
Equipment....................................... 3,312 3,312
Allowances for depreciation..................... (1,628) (1,628)
------- ------ ------- -------
1,684 1,684
------- ------ ------- -------
Total Assets............................ 15,945 2,719 18,664
======= ====== ======= =======
LIABILITIES AND NET CAPITAL DEFICIENCY
Current liabilities:
Trade accounts payable.......................... 4,187 4,187
Accrued payroll and related..................... 731 98 829
Income taxes payable............................ 1,023 1,023
Other accrued expenses.......................... 555 63 618
Payable to Parent............................... 18,028 2,558 20,586
------- ------ ------- -------
Total current liabilities............... 24,524 2,719 27,243
Net capital deficiency
Common stock.................................... 1 1
Additional paid in capital...................... 1,009 1,009
Accumulated deficit............................. (9,589) (9,589)
------- ------ ------- -------
Net capital deficiency............................ (8,579) (8,579)
------- ------ ------- -------
Total liabilities and net capital deficiency...... $ 15,945 $2,719 $ 18,664
======= ====== ======= =======
</TABLE>
F-17
<PAGE> 75
ATL PRODUCTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ODETICS, INC.)
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
ATL ATL ATL PRO FORMA
PRODUCTS, INC. EUROPEAN CUSTOMER ADJUSTMENTS PRO FORMA
HISTORICAL OPERATIONS SERVICE AND ELIMINATIONS CONSOLIDATED
-------------- ---------- -------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Net sales.............................. $ 23,649 $2,003 $2,854 $ (1,466)(1) $ 27,040
Cost of sales.......................... 14,968 1,500 1,138 (1,466)(1) 16,140
-------------- ---------- -------- ---------------- ------------
Gross profit........................... 8,681 503 1,716 10,900
Expenses:
Research and development............. 1,695 1,695
Sales and marketing.................. 2,515 265 49 2,829
General and administrative........... 546 50 267 863
Charges allocated by parent.......... 551 185 736
-------------- ---------- -------- ---------------- ------------
Income from operations................. 3,374 188 1,215 4,777
Interest charges allocated by parent... 817 112(2) 929
-------------- ---------- -------- ---------------- ------------
Income before income taxes............. 2,557 188 1,215 (112) 3,848
Income taxes........................... 1,023 75 486 (45)(3) 1,539
-------------- ---------- -------- ---------------- ------------
Net income............................. $ 1,534 $ 113 $ 729 $ (67) $ 2,309
========== ======== ======= ============ =========
Net income per share................... $ .18 $ .27
========== =========
Shares used in computation of income
per share............................ 8,484 8,484
========== =========
</TABLE>
See accompanying notes.
F-18
<PAGE> 76
ATL PRODUCTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ODETICS, INC.)
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
FOR THE YEAR ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
ATL ATL ATL
PRODUCTS, INC. EUROPEAN CUSTOMER PRO FORMA PRO FORMA
HISTORICAL OPERATIONS SERVICE ADJUSTMENTS CONSOLIDATED
-------------- ---------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net sales.................................. $ 23,936 $6,719 $4,615 $(5,860)(1) $ 29,410
Cost of sales.............................. 16,201 5,263 3,181 (5,784)(1) 18,861
-------------- ---------- -------- ----------- ------------
Gross profit............................... 7,735 1,456 1,434 (76) 10,549
Expenses:
Research and development................. 1,731 1,731
Sales and marketing...................... 2,648 999 71 3,718
General and administrative............... 677 116 621 1,414
Charges allocated by parent.............. 933 602 1,535
Nonrecurring charge...................... 1,392 1,392
-------------- ---------- -------- ----------- ------------
Income from operations..................... 354 341 140 (76) 759
Interest charges allocated by parent....... 1,629 231(2) 1,860
-------------- ---------- -------- ----------- ------------
Income before income taxes................. (1,275) 341 140 (307) (1,101)
Income taxes............................... 0 86 53 (3) 139
-------------- ---------- -------- ----------- ------------
Net income (loss).......................... $ (1,275) $ 255 $ 87 $ (307) $ (1,240)
========== ======== ======= ========= =========
Net income (loss) per share................ $ (.15) $ (.15)
========== =========
Shares used in computation of income (loss)
per share................................ 8,484 8,484
========== =========
</TABLE>
See accompanying notes.
F-19
<PAGE> 77
ATL PRODUCTS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(1) Represents the elimination of sales and related intercompany profit on sales
from the Company to Odetics, for the year ended March 31, 1996 and the six
months ended September 30, 1996. Those sales were made at intercompany
prices established by agreement between the Company and Odetics.
(2) Represents interest on increased payable to Parent balance resulting from of
acquisition of the net assets of service activities from Odetics calculated
in accordance with the cash management agreement between the Company and
Odetics.
(3) Represents the tax benefit of the pro forma adjustments recorded above. No
benefit is reflected for the year ended March 31, 1996 because of the
Company's overall loss position.
F-20
<PAGE> 78
- ------------------------------------------------------
- ------------------------------------------------------
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained by
reference in this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Company
or the Underwriters. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy, to any person in any jurisdiction in which such
offer or solicitation would be unlawful or to any person to whom it is unlawful.
Neither the delivery of this Prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that there has been no change in the
affairs of the Company or that the information contained herein is correct as of
any time subsequent to the date hereof.
----------------------------
TABLE OF CONTENTS
----------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary................... 3
Risk Factors......................... 6
Use of Proceeds...................... 15
Dividend Policy...................... 15
Capitalization....................... 16
Dilution............................. 17
Pro Forma Selected Consolidated
Financial Data..................... 18
Selected Consolidated Financial
Data............................... 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 20
Business............................. 29
Management........................... 40
Relationship between the Company and
Odetics............................ 48
Principal Stockholder................ 51
Description of Securities............ 52
Shares Eligible for Future Sale...... 54
Underwriting......................... 55
Legal Matters........................ 56
Experts.............................. 56
Additional Information............... 56
Index to Consolidated Financial
Statements......................... F-1
</TABLE>
----------------------------
Until , 1997 (25 days after the date of this Prospectus), all
dealers effecting transactions in the Common Stock, whether or not participating
in this distribution, may be required to deliver a Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
1,650,000 SHARES
LOGO
COMMON STOCK
------------------------
PROSPECTUS
------------------------
MONTGOMERY SECURITIES
CRUTTENDEN ROTH
INCORPORATED
, 1997
------------------------------------------------------
------------------------------------------------------
<PAGE> 79
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale and
distribution of the securities being registered. All amounts are estimated
except the Securities and Exchange Commission registration fee. All of the
expenses below will be paid by the Registrant.
<TABLE>
<CAPTION>
ITEM AMOUNT
-------------------------------------------------------------------------- --------
<S> <C>
Registration fee.......................................................... $ 6,891
NASD filing fee........................................................... 2,774
Nasdaq National Market listing (entry) fee................................ *
Blue Sky fees and expenses................................................ *
Printing and engraving expenses........................................... *
Legal fees and expenses................................................... *
Accounting fees and expenses.............................................. *
Transfer Agent and Registrar fees......................................... *
Directors and officers insurance.......................................... *
Miscellaneous............................................................. *
--------
Total........................................................... $575,000
========
</TABLE>
- ---------------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the Delaware General Corporation Law the Registrant
has broad powers to indemnify its directors and officers against liabilities
they may incur in such capacities, including liabilities under the Securities
Act of 1933. The Registrant's Bylaws (Exhibit 3.3 hereto) provides that the
Registrant shall indemnify its directors and officers to the fullest extent
permitted by Delaware law. The Bylaws require the Registrant, subject to certain
limitations, to advance litigation expenses in the case of stockholder
derivative actions or other actions, against an undertaking by the directors and
officers to repay such advances if it is ultimately determined that the
directors or officers are not entitled to indemnification. The Bylaws further
provide that rights conferred under such Bylaws shall not be deemed to be
exclusive of any other right such persons may have or acquire under any
agreement, vote of stockholders or disinterested directors, or otherwise. The
Registrant believes that indemnification under its Bylaws covers at least
negligence and gross negligence.
In addition, the Registrant's Certificate of Incorporation (the
"Certificate") (Exhibit 3.1 hereto) provides that the Registrant shall indemnify
its directors and officers if such persons acted (i) in good faith, (ii) in a
manner reasonably believed to be in or not opposed to the best interests of the
Registrant, and (iii) with respect to any criminal action or proceeding, with
reasonable cause to believe such conduct was lawful. The Certificate also
provides that, pursuant to Delaware law, its directors shall not be liable for
monetary damages for breach of the directors' fiduciary duty of care to the
Registrant and its stockholders. This provision in the Certificate does not
eliminate the duty of care, and in appropriate circumstances equitable remedies
such as injunctive or other forms of non-monetary relief will remain available
under Delaware law. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to the Registrant for
acts or omissions not in good faith or involving intentional misconduct, for
knowing violations of law, for actions leading to improper personal benefit to
the director, and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under Delaware law. The provision also does not
affect a director's responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws. The Certificate further
provides that the Registrant be authorized
II-1
<PAGE> 80
to indemnify its directors and officers to the fullest extent permitted by law
through the Bylaws, agreement, vote of stockholders or disinterested directors,
or otherwise.
The Registrant intends to obtain directors' and officers' liability
insurance in connection with this Offering.
In addition, the Registrant has entered or, concurrently with this
Offering, will enter, into agreements to indemnify its directors and certain of
its officers in addition to the indemnification provided for in the Certificate
and Bylaws. These agreements will, among other things, indemnify the
Registrant's directors and certain of its officers for certain expenses
(including attorneys fees), judgments, fines and settlement amounts incurred by
such person in any action or proceeding, including any action by or in the right
of the Registrant, on account of services by that person as a director or
officer of the Registrant or as a director or officer of any subsidiary of the
Registrant, or as a director or officer of any other company or enterprise that
the person provides services to at the request of the Registrant.
The Underwriting Agreement (Exhibit 1.1 hereto) provides for
indemnification by the Underwriters of the Registrant, its officers and
directors and by the Registrant of the Underwriter, for certain liabilities
arising under the Securities Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since December 1996, the Registrant has sold and issued the following
unregistered securities:
1. In December 1996, the Registrant granted nonstatutory stock options
to certain employees of the Registrant under its 1996 Stock Incentive Plan
covering an aggregate of 879,000 shares of the Registrant's Class B Common
Stock, at a weighted average exercise price of $5.00 per share. These
options vest over a three year period commencing two years following the
date of grant. All of such options were issued in consideration for
employment services rendered to the Registrant. None of the optionees paid
any cash consideration for these options. The sale and issue of these
securities was deemed to be exempt from registration under the Securities
Act by virtue of Rule 701 promulgated thereunder in that they were offered
and sold either pursuant to a written compensatory benefit plan or pursuant
to written contract relating to compensation, as provided by Rule 701.
2. In December 1996, the Registrant effected a reincorporation in
Delaware which included a recapitalization in which two classes of Common
Stock were authorized, and each share of the Registrant's no par Common
Stock was exchanged for 8,005 shares of Common Stock, par value $.0001 per
share. Such issuance was exempt from registration under Section 2(3) of the
Securities Act on the basis that such transaction did not involve a "sale"
of securities.
There were no underwriters, brokers or finders employed in connection with
any of the transactions set forth above.
II-2
<PAGE> 81
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
The following Exhibits are attached hereto and incorporated herein by
reference.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement.*
3.1 Certificate of Incorporation of the Registrant as filed with the Delaware Secretary
of State on December 19, 1996.
3.2 Certificate of Merger of the Registrant as filed with the Delaware Secretary of
State on December 19, 1996.
3.3 Bylaws of the Registrant.
4.1 Specimen certificate representing shares of Common Stock of the Registrant.*
4.2 1996 Stock Incentive Plan.
5.1 Form of Opinion of Brobeck, Phleger & Harrison LLP.*
10.1 Form of Indemnification Agreement.
10.2 Real Property lease, dated October 9, 1996, by and between Thomas M. Zapara and
Violet J. Zapara, Trustees of the Zapara Family Trust U/D/T dated December 7, 1995
and Registrant, a wholly owned subsidiary of Odetics, Inc.*
10.3 Form of Separation and Distribution Agreement between the Registrant and Odetics.
10.4 Form of Tax Allocation Agreement between the Registrant and Odetics.*
10.5 Form of Services Agreement between the Registrant and Odetics.
10.6 Form of Value Added Reseller Agreement.
10.7 Form of International Value Added Reseller Agreement.
10.8 Technical Support Agreement between Technology Service Solutions and Odetics,
Incorporated.*
10.9 Quantum Tape Library OEM Purchase Agreement, dated as of August 28, 1996, between
Quantum Corporation and Registrant.*
10.10 Veritas Software License Agreement, dated as of November 8, 1996, between Veritas
Software Corporation and Registrant.*
11.1 Statement Regarding Computation of Earnings Per Share.
23.1 Consent of Independent Auditors.
23.2 Consent of Brobeck, Phleger & Harrison LLP (contained in Exhibit 5.1).
24.1 Power of Attorney.
27.1 Financial Data Schedules
</TABLE>
- ---------------
* to be filed by amendment
(b) Financial Statement Schedules
<TABLE>
<CAPTION>
SCHEDULE
- ------------
<S> <C>
Schedule II Valuation and Qualifying Accounts
</TABLE>
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes to provide the Underwriters at the closing
specified in the Underwriting Agreements certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted as to directors, officers and controlling persons of
the Registrant pursuant to the provisions described in Item 14, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of
II-3
<PAGE> 82
expenses incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus as filed as
part of the registration statement in reliance upon Rule 430A and contained
in the form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of the registration statement as of the time it was declared
effective;
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to provide the underwriters at
the closing as specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
II-4
<PAGE> 83
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-1 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Anaheim, State of California, on the day of December, 1996.
ATL PRODUCTS, INC.
By:
--------------------------------------
Kevin C. Daly, Ph.D.
Chief Executive Officer, President
and Chairman of the Board
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Kevin C. Daly, Ph.D. and Gregory A. Miner,
and each of them, his true and lawful attorney-in-fact and agent, each with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this
Registration Statement, or any related registration statement filed pursuant to
Rule 462(f) under the Securities Exchange Act of 1934, as amended, with exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby, ratifying and
confirming all that each of said attorneys-in-fact and agents, or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1933, this
Registration Statement on Form S-1 has been signed by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------- --------------------------------- ------------------
<S> <C> <C>
- ---------------------------------
Director, Chief Executive December , 1996
Officer,
Kevin C. Daly, Ph.D.
President and Chairman of the
Board
(principle executive officer)
- ---------------------------------
Director December , 1996
Joel Slutzky
- ---------------------------------
Director December , 1996
Crandall Gudmundson
- ---------------------------------
Chief Financial Officer December , 1996
(principal
Gregory A. Miner
financial and accounting officer)
</TABLE>
II-5
<PAGE> 84
REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULES
Board of Directors
ATL Products, Inc.
We have audited the financial statements of ATL Products, Inc. as of March
31, 1996 and 1995, and for each of the three years in the period ended March 31,
1996, and have issued our report thereon dated November 20, 1996, except for
Note 10, as to which the date is December 19, 1996 (included elsewhere in this
Registration Statement). Our audits also included the financial statement
schedule listed in Item 16(b) of this Registration Statement. This schedule is
the responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Orange County, California
November 20, 1996
S-1
<PAGE> 85
SCHEDULE II
ATL PRODUCTS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGES TO CHARGES
BEGINNING COSTS AND TO OTHER BALANCE AT
OF YEAR EXPENSES ACCOUNTS DEDUCTIONS END OF YEAR
---------- ---------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED MARCH 31, 1994
Deducted from assets accounts:
Allowance for doubtful accounts.... $ -- $ 75 $ -- $ -- $ 75
Reserve for inventory
obsolescence.................... -- 63 -- -- 63
------ ------ ------ --- ------
Total...................... $ -- $ 138 $ -- $ -- $ 138
====== ====== ====== === ======
YEAR ENDED MARCH 31, 1995
Deducted from assets accounts:
Allowance for doubtful accounts.... $ 75 $ 648 $ -- $ 96 $ 627
Reserve for inventory
obsolescence.................... 63 3,027 -- -- 3,090
------ ------ ------ --- ------
Total...................... $ 138 $3,675 $ -- $ 96 $ 3,717
====== ====== ====== === ======
YEAR ENDED MARCH 31, 1996
Deducted from assets accounts:
Allowance for doubtful accounts.... $ 627 $ 38 $ -- $ 3 $ 662
Reserve for inventory
obsolescence.................... 3,090 255 -- -- 3,345
------ ------ ------ --- ------
Total...................... $3,717 $ 293 $ -- $ 3 $ 4,007
====== ====== ====== === ======
</TABLE>
- ---------------
(1) Uncollectible accounts written off, net of recoveries.
S-2
<PAGE> 86
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ --------------------------------------------------------------------------- ------------
<S> <C> <C>
1.1 Form of Underwriting Agreement*............................................
3.1 Certificate of Incorporation of the Registrant as filed with the Delaware
Secretary of State on December 19, 1996....................................
3.2 Certificate of Merger of the Registrant as filed with the Delaware
Secretary of State on December 19, 1996....................................
3.3 Bylaws of the Registrant...................................................
4.1 Specimen certificate representing shares of Common Stock of the
Registrant*................................................................
4.2 1996 Stock Incentive Plan..................................................
5.1 Form of Opinion of Brobeck, Phleger & Harrison LLP*........................
10.1 Form of Indemnification Agreement..........................................
10.2 Real Property lease, dated October 9, 1996 by and between Thomas M. Zapara
and Violet J. Zapara, Trustees of the Zapara Family Trust U/D/T dated
December 7, 1995 and Registrant, a wholly owned subsidiary of Odetics,
Inc.*......................................................................
10.3 Form of Separation and Distribution Agreement between the Registrant and
Odetics....................................................................
10.4 Form of Tax Allocation Agreement between the Registrant and Odetics*.......
10.5 Form of Services Agreement between the Registrant and Odetics..............
10.6 Form of Value Added Reseller Agreement.....................................
10.7 Form of International Value Added Reseller Agreement.......................
10.8 Technical Support Agreement between Technology Service Solutions and
Odetics, Incorporated*.....................................................
10.9 Quantum Tape Library OEM Purchase Agreement, dated as of August 28, 1996,
between Quantum Corporation and Registrant*................................
10.10 Veritas Software License Agreement, dated as of November 8, 1996, between
Veritas Software Corporation and Registrant*...............................
11.1 Statement Regarding Computation of Earnings Per Share......................
23.1 Consent of Independent Auditors............................................
23.2 Consent of Brobeck, Phleger & Harrison LLP (contained in Exhibit 5.1)......
24.1 Power of Attorney..........................................................
27.1 Financial Data Schedules...................................................
</TABLE>
- ---------------
* to be filed by amendment
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION OF
ATL PRODUCTS, INC.
ARTICLE I
The name of this corporation is ATL Products, Inc.
ARTICLE II
The address of the registered office of the corporation in the State of
Delaware is 9 East Loockerman Street, Dover, 19901. The name of the
corporation's registered agent at such address is National Registered Agents,
Inc.
ARTICLE III
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the Delaware General Corporation Law.
ARTICLE IV
(A) Classes of Stock. The total number of shares of stock which the
corporation shall have the authority to issue shall be Fifty-Five Million
(55,000,000), consisting Fifty Million (50,000,000) shares of Common Stock, par
value $0.0001 per share (the "Common Stock"), and Five Million (5,000,000)
shares of Preferred Stock, par value $0.0001 per share. The Common Stock of
the corporation shall be all of one class, and shall be divided into two
initial series, consisting of Class A Common Stock and Class B Common Stock.
(B) Rights, Preferences and Restrictions of Preferred Stock. The
Preferred Stock authorized by this Certificate of Incorporation may be issued
from time to time in one or more series. The Board of Directors of the
corporation is hereby authorized, within the limitations and restrictions
stated in this Certificate of Incorporation, to fix or alter, by resolution or
resolutions adopted by the Board of Directors, the powers, designations,
preferences, and relative, participating, optional or other rights, if any, or
the qualifications, limitations or restrictions thereof (including dividend
rights, dividend rate, conversion rights, voting rights, rights and terms of
redemption (including sink fund provisions), the redemption price or prices,
and the liquidation preferences) granted to or imposed upon the Preferred
Stock, and the number of shares constituting any such series and the
designation thereof, or any of them. The Board of Directors is also authorized
to increase or decrease the number of shares of any series prior or subsequent
to the issuance of that series, but not below the number of shares of such
series then outstanding. In the event the number of shares of any series
shall be so decreased, the shares constituting such decrease shall resume the
status which they had prior to the adoption of the resolution originally fixing
the number of shares of such series.
<PAGE> 2
(C) Common Stock. Of the Fifty Million (50,000,000) shares of Common
Stock, Forty-Five Million (45,000,000) shares are initially designated as Class
A Common Stock, and Five Million (5,000,000) are initially designated as Class
B Common Stock. Except as otherwise set forth in this Article IV, the powers,
preferences and relative participating, optional or other special rights,
qualifications, limitations or restrictions of the Class A Common Stock and the
Class B Common Stock shall be identical in all respects.
The relative rights, preferences and privileges and restrictions on the
Class A Common Stock and Class B Common Stock are as follows:
1. Dividend Rights. Subject to the rights of holders of all classes of
stock at the time outstanding having prior rights as to dividends, the holders
of the Common Stock shall be entitled to receive, when, if and as declared by
the Board of Directors, out of any assets of the corporation legally available
therefor, such dividends as may be declared from time to time by the Board of
Directors.
2. Liquidation Rights. Upon the liquidation, dissolution or winding up
of the corporation, the holders of Common Stock are entitled to the right to
receive ratably, all of the assets and funds of the corporation remaining after
the payment to the holders of any series of Preferred Stock of the specific
amounts which they are entitled to receive upon such liquidation.
3. Voting Rights. The holder of each share of Class A Common Stock
shall be entitled to one vote per share and the holder of each share of Class B
Common Stock shall be entitled to one twentieth vote per share. Each holder of
Common Stock shall be entitled to notice of any stockholders' meeting in
accordance with this Certificate of Incorporation and the Bylaws of the
corporation, and shall be entitled to vote upon such matters and in such manner
as may be provided by law.
4. Redemption. The Common Stock is not redeemable.
ARTICLE V
The name and mailing address of the incorporator is Kevin C. Daly, ATL
Products, Inc., 1515 South Manchester Avenue, Anaheim, California 92802-2907.
ARTICLE VI
Except as otherwise provided in this Certificate of Incorporation, in
furtherance and not in limitation of the powers conferred by statute, the Board
of Directors is expressly authorized to make, repeal, alter, amend or rescind
any or all of the Bylaws of the corporation.
2
<PAGE> 3
ARTICLE VII
The number of directors of the corporation shall be fixed from time to time
by, or in the manner provided in, the Bylaws or amendment thereof duly adopted
by the Board of Directors or by the stockholders of the corporation.
ARTICLE VIII
Elections of directors need not be by written ballot unless the Bylaws of
the corporation shall so provide.
ARTICLE IX
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the corporation may be kept
outside the State of Delaware at such place or places as may be designated from
time to time by the Board of Directors or in the Bylaws of the corporation.
ARTICLE X
A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived
any improper personal benefit. If the Delaware General Corporation Law is
amended after approval by the stockholders of this Article X to authorize
corporate action further eliminating or limiting the personal liability of
directors then the liability of a director of the corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law as so amended.
Any repeal or modification of the foregoing provisions of this Article X by
the stockholders of the corporation shall not adversely affect any right or
protection of a director of the corporation existing at the time of such repeal
or modification.
ARTICLE XI
To the fullest extent permitted by applicable law, the corporation is also
authorized to provide indemnification of (and advancement of expenses to) its
directors and officers (and any other person to which Delaware law permits the
corporation to provide indemnification) through Bylaw provisions, agreements
with such agents or other persons, vote of stockholders or disinterested
directors or otherwise, in excess of the indemnification and advancement
otherwise permitted by Section 145 of the Delaware General Corporation Law,
subject only to limits created by applicable Delaware law (statutory or
non-statutory), with respect to actions for breach of duty to the corporation,
its stockholders, and others.
3
<PAGE> 4
Any repeal or modification of any of the foregoing provisions of this
Article XI shall not adversely affect any right or protection of a director,
officer, agent or other person existing at the time of, or increase the
liability of any director of the corporation with respect to any acts or
omissions of such director, officer or agent occurring prior to such repeal or
modification.
ARTICLE XII
The corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
IN WITNESS WHEREOF, the undersigned has executed this Certificate this 19th
day of December 1996.
/s/ KEVIN C. DALY
----------------------------------
Kevin C. Daly
Incorporator
4
<PAGE> 1
EXHIBIT 3.2
CERTIFICATE OF MERGER
OF
ATL PRODUCTS, INC.,
A CALIFORNIA CORPORATION
INTO
ATL PRODUCTS, INC.,
A DELAWARE CORPORATION
----------------------------
ATL Products, Inc., a corporation organized and existing under
the General Corporation Law of the State of Delaware, hereby certifies as
follows:
1. The names and states of incorporation of each of the
constituent corporations of the merger is as follows:
ATL Products, Inc., a California corporation ("ATL California"), and
ATL Products, Inc., a Delaware corporation (the "Surviving Company").
2. An Agreement and Plan of Merger has been approved,
adopted, certified, executed and acknowledged by ATL California, and the
Surviving Company in accordance with the provisions of subsection (c) of
Section 252 of the General Corporation Law of the State of Delaware.
3. The name of the surviving corporation is ATL
Products, Inc., a Delaware corporation.
4. The Certificate of Incorporation and the Bylaws of
the Surviving Company shall be the Certificate of Incorporation of the
surviving corporation without change or amendment until further amended in
accordance with applicable law.
5. The surviving corporation is a corporation of the
State of Delaware.
6. The executed Agreement and Plan of Merger is on file
at the principal place of business of the Surviving Company. The address of
the principal place of business of the Surviving Company is 1515 South
Manchester Avenue, Anaheim, California 92802-2907.
7. A copy of the Agreement and Plan of Merger will be
furnished by the Surviving Company on request and without cost to any
stockholder of ATL California or the Surviving Company.
8. The capital stock of ATL California consists of
10,000 shares of common stock, no par value, of which 1,000 shares are issued
and outstanding.
1
<PAGE> 2
9. Each share of ATL California Common Stock, no par
value, issued and outstanding immediately prior to the date hereof, shall by
virtue of the merger and without any action by the constituent corporations,
the holder of such shares or any other person, be converted into and exchanged
for 8,005 fully paid and nonassessable shares of Class A Common Stock, par
value $.0001 per share, of the Surviving Company.
10. Each share of Class A Common Stock, par value $.0001
per share, of the Surviving Company issued and outstanding immediately prior to
the date hereof, shall, by virtue of the merger and without any action by
Surviving Company, the holder of such shares or any other person, be cancelled
and returned to the status of authorized but unissued shares.
IN WITNESS WHEREOF, this Certificate of Merger is hereby
executed on behalf of the Surviving Company, ATL Products, Inc., and attested
to by its officers thereunto duly authorized.
Dated: December 19, 1996 ATL PRODUCTS, INC., a
Delaware corporation
By: /s/ KEVIN C. DALY
---------------------------------
Kevin C. Daly
President and Chief
Executive Officer
2
<PAGE> 1
EXHIBIT 3.3
BYLAWS
OF
ATL PRODUCTS, INC.
A DELAWARE CORPORATION
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office shall be at
the office of National Registered Agents, Inc.
Section 2. Other Offices. The corporation may also have offices
at such other places both within and without the State of Delaware as the Board
of Directors may on an annual basis determine or the business of the
corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Annual Meeting. An annual meeting of the
stockholders for the election of directors shall be held at such place either
within or without the State of Delaware as shall be designated on an annual
basis by the Board of Directors and stated in the notice of the meeting.
Meetings of stockholders for any other purpose may be held at such time and
place, within or without the State of Delaware, as shall be stated in the
notice of the meeting or in a duly executed waiver of notice thereof.
Section 2. Notice of Annual Meeting. Written notice of the
annual meeting stating the place, date and hour of the meeting shall be given
to each stockholder entitled to vote at such meeting not less than ten (10) nor
more than sixty (60) days before the date of the meeting.
Section 3. Voting List. The officer who has charge of the stock
ledger of the corporation shall prepare and make, or cause a third party to
prepare and make, at least ten (10) days before every meeting of stockholders,
a complete list of the stockholders entitled to vote at the meeting, arranged
in alphabetical order, and showing the address of each stockholder and the
number of shares registered in the name of each stockholder. Such list shall
be open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten (10) days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting, or, if
not so specified, at the place where the meeting is to be held. The list shall
also
<PAGE> 2
be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 4. Special Meetings. Special meetings of the
stockholders of this corporation, for any purpose or purposes, unless otherwise
prescribed by statute or by the Certificate of Incorporation, shall be called
by the President or Secretary at the request in writing of the President, a
majority of the members of the Board of Directors or holders of at least 20% of
the total voting power of all outstanding shares of stock of this corporation
then entitled to vote, and may not be called absent such a request. Such
request shall state the purpose or purposes of the proposed meeting.
Section 5. Notice of Special Meetings. As soon as reasonably
practicable after receipt of a request as provided in Section 4 of this Article
II, written notice of a special meeting, stating the place, date (which shall
be not less than ten (10) nor more than sixty (60) days from the date of the
notice) and hour of the special meeting and the purpose or purposes for which
the special meeting is called, shall be given to each stockholder entitled to
vote at such special meeting.
Section 6. Scope of Business at Special Meeting. Business
transacted at any special meeting of stockholders shall be limited to the
purposes stated in the notice.
Section 7. Quorum. The holders of a majority of the stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business, except as otherwise provided by
statute or by the Certificate of Incorporation. If, however, such quorum shall
not be present or represented at any meeting of the stockholders, the chairman
of the meeting or the stockholders entitled to vote thereat, present in person
or represented by proxy, shall have power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present or represented. At such adjourned meeting at which a quorum
shall be present or represented, any business may be transacted which might
have been transacted at the meeting as originally notified. If the adjournment
is for more than thirty (30) days, or if after the adjournment a new record
date is fixed for the adjourned meeting, a notice of the adjourned meeting
shall be given to each stockholder of record entitled to vote at the meeting as
provided in Section 5 of this Article II.
Section 8. Qualifications to Vote. The stockholders of record
on the books of the corporation at the close of business on the record date as
determined by the Board of Directors and only such stockholders shall be
entitled to vote at any meeting of stockholders or any adjournment thereof.
Section 9. Record Date. The Board of Directors may fix a record
date for the determination of the stockholders entitled to notice of or to vote
at any stockholders' meeting and at any adjournment thereof, and to fix a
record date for any other purpose. The record date shall not be more than
sixty (60) nor less than ten (10) days before the date of such meeting. If no
record date is fixed by the Board of Directors, the record date for determining
stockholders
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entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given,
or if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to
any adjournment of the meeting; provided, however, that the Board of Directors
may fix a new record date for the adjourned meeting.
Section 10. Action at Meetings. When a quorum is present at any
meeting, the vote of the holders of a majority of the stock having voting power
present in person or represented by proxy shall decide any question brought
before such meeting, unless the question is one upon which by express provision
of applicable law or of the Certificate of Incorporation, a different vote is
required, in which case such express provision shall govern and control the
decision of such question.
Section 11. Voting and Proxies. Unless otherwise provided in the
Certificate of Incorporation, each stockholder shall at every meeting of the
stockholders be entitled to one (1) vote in person or by proxy for each share
of the capital stock having voting power held by such stockholder, but no proxy
shall be voted on after three (3) years from its date, unless the proxy
provides for a longer period. Each proxy shall be revocable unless expressly
provided therein to be irrevocable and unless it is coupled with an interest
sufficient in law to support an irrevocable power
Section 12. Nominations for Board of Directors. Nominations for
election to the Board of Directors must be made by the Board of Directors or by
any stockholder of any outstanding class of capital stock of the corporation
entitled to vote for the election of directors. Nominations, other than those
made by the Board of Directors of the corporation, must be preceded by
notification in writing in fact received by the Secretary of the corporation
not less than sixty (60) days nor more than ninety (90) days prior to any
meeting of stockholders called for the election of directors. Such
notification shall contain the written consent of each proposed nominee to
serve as a director if so elected and the following information as to each
proposed nominee and as to each person, acting alone or in conjunction with one
or more other persons as a partnership, limited partnership, syndicate or other
group, who participates or is expected to participate in making such nomination
or in organizing, directing or financing such nomination or solicitation of
proxies to vote for the nominee:
(a) the name, age, residence, address, and business
address of each proposed nominee and of each such person;
(b) the principal occupation or employment, the name,
type of business and address of the corporation or other organization
in which such employment is carried on of each proposed nominee and of
each such person;
(c) the amount of stock of the corporation owned
beneficially, either directly or indirectly, by each proposed nominee
and each such person; and
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(d) a description of any arrangement or understanding of
each proposed nominee and of each such person with each other or any
other person regarding future employment or any future transaction to
which the corporation will or may be a party.
The presiding officer of the meeting shall have the authority to
determine and declare to the meeting that a nomination not preceded by
notification made in accordance with the foregoing procedure shall be
disregarded.
Section 13. Stockholder Proposals for Meetings. At any meeting
of the stockholders, only such business shall be conducted as shall be properly
before the meeting. To be properly before a meeting, business must be (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors, (b) otherwise properly brought before
the meeting by or at the direction of the Board of Directors, or (c) otherwise
properly brought before the meeting by a stockholder. For business to be
properly brought before a meeting by a stockholder, the stockholder must have
given timely notice thereof in writing to the Secretary. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal place of business of the corporation not less than thirty (30) days
nor more than sixty (60) days prior to the meeting; provided, however, that in
the event that less than forty (40) days notice or prior public disclosure of
the date of the meeting is given or made to stockholders, notice by the
stockholder to be timely must be received not later than the close of business
on the tenth day following the day on which such notice of the date of the
meeting was mailed or such public disclosure was made. A stockholder's written
notice to the Secretary shall set forth as to each matter the stockholder
proposes to bring before the meeting (a) a brief description of the business
desired to be brought before the meeting and the reasons for conducting such
business at the meeting, (b) the name and address as they appear on the
corporation's books of the stockholder proposing such business, (c) the class
and number of shares of the corporation which are beneficially owned by such
stockholder, and (d) any material interest of such stockholder in such
business. Notwithstanding anything in these Bylaws to the contrary, no
business shall be conducted at a meeting unless properly brought before such
meeting in accordance with the procedures set forth in this Section 13 of
Article II. The chairman of the meeting shall, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the
meeting in accordance with the provisions of this Section 13 of Article II and
if it shall be so determined, the chairman of the meeting shall so declare this
to the meeting and such business not properly brought before the meeting shall
not be transacted.
ARTICLE III
DIRECTORS
Section 1. Powers. The business of the corporation shall be
managed by or under the direction of its Board of Directors, which may exercise
all such powers of the corporation and do all such lawful acts and things as
are not by applicable law or by the Certificate of
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Incorporation or by these Bylaws directed or required to be exercised or done
by the stockholders.
Section 2. Number; Election; Tenure and Qualification. The
number of directors which shall constitute the whole Board of Directors shall
be fixed from time to time by resolution of the Board of Directors or by the
Stockholders at an annual meeting of the Stockholders provided that the number
of directors shall not be less than four (4) nor more than seven (7). With the
exception of the first Board of Directors, which shall be elected by the
incorporator, and except as provided in the corporation's Certificate of
Incorporation or in Section 3 of this Article III, the directors shall be
elected at the annual meeting of the stockholders by a plurality vote of the
shares represented in person or by proxy and each director elected shall hold
office until his successor is elected and qualified unless he shall resign,
become disqualified, disabled, or otherwise removed. Directors need not be
stockholders.
Section 3. Vacancies and Newly Created Directorships. Unless
otherwise provided in the Certificate of Incorporation, vacancies and
newly-created directorships resulting from any increase in the authorized
number of directors may be filled by a majority of the directors then in
office, though less than a quorum, or by a sole remaining director. The
directors so chosen shall serve for the remainder of the term of the vacated
directorships being filled and until their successors are duly elected and
shall qualify, unless sooner displaced. If there are no directors in office,
then an election of directors may be held in the manner provided by statute.
Section 4. Location of Meetings. The Board of Directors of the
corporation may hold meetings, both regular and special, either within or
without the State of Delaware.
Section 5. Meeting of Newly Elected Board of Directors. The
first meeting of each newly elected Board of Directors shall be held
immediately following the annual meeting of stockholders and no notice of such
meeting shall be necessary to the newly elected directors in order legally to
constitute the meeting, provided a quorum shall be present. In the event such
meeting is not held at such time, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 6. Regular Meetings. Regular meetings of the Board of
Directors may be held upon at least seven (7) days prior written notice at such
time and at such place as shall from time to time be determined by the Board of
Directors; provided that any director who is absent when such a determination
is made shall be given notice of such location. Notice may be waived in
accordance with Section 229 of the Delaware General Corporation Law.
Section 7. Special Meetings. Special meetings of the Board of
Directors may be called by the President on seven (7) days' notice to each
director by mail or two (2) days' notice to each director by overnight courier
service or facsimile; special meetings shall be called by the President or
Secretary in a like manner and on like notice on the written request of two (2)
directors unless the Board of Directors consists of only one (1) director, in
which case special
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meetings shall be called by the President or Secretary in a like manner and on
like notice on the written request of the sole director. Notice may be waived
in accordance with Section 229 of the Delaware General Corporation Law.
Section 8. Quorum and Action at Meetings. At all meetings of
the Board of Directors, a majority of the directors then in office shall
constitute a quorum for the transaction of business, and the act of a majority
of the directors present at any meeting at which there is a quorum shall be the
act of the Board of Directors, except as may be otherwise specifically provided
by statute or by the Certificate of Incorporation. If a quorum shall not be
present at any meeting of the Board of Directors, the directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 9. Action Without a Meeting. Unless otherwise
restricted by the Certificate of Incorporation or these Bylaws, any action
required or permitted to be taken at any meeting of the Board of Directors or
of any committee thereof may be taken without a meeting, if all members of the
board or committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board of
Directors or committee.
Section 10. Telephonic Meeting. Unless otherwise restricted by
the Certificate of Incorporation or these Bylaws, members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors, or any committee, upon
proper notice duly given, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
Section 11. Committees. The Board of Directors may, by
resolution passed by a majority of the whole board, designate one or more
committees, each committee to consist of one (1) or more of the directors of
the corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence of disqualification of
a member of a committee, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member.
Section 12. Committee Authority. Any such committee, to the
extent provided in the resolution of the Board of Directors, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation, and may authorize
the seal of the corporation to be affixed to all papers which may require it;
but no such committee shall have the power or authority in reference to
amending the Certificate of Incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, recommending
to the stockholders a dissolution of the corporation or a revocation
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of a dissolution, amending the Bylaws of the corporation, or any action
requiring unanimous consent of the Board of Directors pursuant to the terms of
the Certificate of Incorporation; and, unless the resolution or the Certificate
of Incorporation expressly so provide, no such committee shall have the power
or authority to declare a dividend or to authorize the issuance of stock. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the Board of Directors.
Section 13. Committee Minutes. Each committee shall keep regular
minutes of its meetings and report the same to the Board of Directors when
required.
Section 14. Directors Compensation. Unless otherwise restricted
by the Certificate of Incorporation or these Bylaws, the Board of Directors
shall have the authority to fix the compensation of directors. The directors
may be paid their expenses, if any, of attendance at each meeting of the Board
of Directors and may be paid a fixed sum for attendance at each meeting of the
Board of Directors or a stated salary as director. No such payment shall
preclude any director from serving the corporation in any other capacity and
receiving compensation therefor. Members of special or standing committees may
be allowed like compensation for attending committee meetings.
Section 15. Resignation. Any director or officer of the
corporation may resign at any time. Each such resignation shall be made in
writing and shall take effect at the time specified therein, or, if no time is
specified, at the time of its receipt by either the Board of Directors, the
President or the Secretary. The acceptance of a resignation shall not be
necessary to make it effective unless expressly so provided in the resignation.
ARTICLE IV
NOTICES
Section 1. Notice to Directors and Stockholders. Whenever,
under the provisions of the statutes or of the Certificate of Incorporation or
of these Bylaws, notice is required to be given to any director or stockholder,
it shall not be construed to mean personal notice, but such notice may be given
in writing, by mail, addressed to such director or stockholder, at his address
as it appears on the records of the corporation, with postage thereon prepaid,
and such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. An affidavit of the Secretary or an
Assistant Secretary or of the transfer agent of the corporation that the notice
has been given shall in the absence of fraud, be prima facie evidence of the
facts stated therein. Notice to directors may also be given by telephone,
facsimile or telegram.
Section 2. Waiver. Whenever any notice is required to be given
under the provisions of the statutes or of the Certificate of Incorporation or
of these Bylaws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto. The written waiver need not specify the business
to be transacted at, nor the purpose of, any regular or special meeting of the
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stockholders, directors, or members of a committee of directors. Attendance of
a person at a meeting shall constitute a waiver of notice of such meeting,
except when the person attends a meeting for the express purpose of objecting
at the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened.
ARTICLE V
OFFICERS
Section 1. Enumeration. The officers of the corporation shall
be chosen by the Board of Directors and shall be a President, a Secretary, a
Treasurer or Chief Financial Officer and such other officers with such other
titles as the Board of Directors shall determine. The Board of Directors may
elect from among its members a Chairman or Chairmen of the Board and a Vice
Chairman of the Board. The Board of Directors may also choose one (1) or more
Vice Presidents and Assistant Secretaries. Any number of offices may be held
by the same person, unless the Certificate of Incorporation or these Bylaws
otherwise provide.
Section 2. Election. The Board of Directors at its first
meeting after each annual meeting of stockholders shall elect a President, a
Secretary, a Treasurer and such other officers with such other titles as the
Board of Directors shall determine.
Section 3. Appointment of Other Agents. The Board of Directors
may appoint such other officers and agents as it shall deem necessary, who
shall hold their offices for such terms and shall exercise such powers and
perform such duties as shall be determined from time to time by the Board of
Directors.
Section 4. Compensation. The salaries of all officers of the
corporation shall be fixed by the Board of Directors or a committee thereof.
The salaries of agents of the corporation shall, unless fixed by the Board of
Directors, be fixed by the President or the Executive Vice President of the
corporation.
Section 5. Tenure. The officers of the corporation shall hold
office until their successors are chosen and qualify. Any officer elected or
appointed by the Board of Directors may be removed at any time by the
affirmative vote of a majority of the directors of the Board of Directors. Any
vacancy occurring in any office of the corporation shall be filled by the Board
of Directors.
Section 6. Chairman of the Board and Vice Chairman of the Board.
The Chairman or Chairmen of the Board, if any, shall preside at all meetings of
the Board of Directors and of the stockholders at which he or they shall be
present. He or they shall have and may exercise such powers as are, from time
to time, assigned to him or them by the Board and as may be provided by law.
In the absence of the Chairman of the Board, the Vice Chairman of the Board, if
any, shall preside at all meetings of the Board of Directors and of the
stockholders at which he shall be present. He shall have and may exercise such
powers as are, from time to time, assigned to him by the Board of Directors and
as may be provided by law.
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Section 7. President. The President shall be the Chief
Executive Officer of the corporation unless such title is assigned to a
Chairman of the Board; and in the absence of a Chairman and Vice Chairman of
the Board he shall preside as the chairman of meetings of the stockholders and
the Board of Directors; he shall have general and active management of the
business of the corporation and shall see that all orders and resolutions of
the Board of Directors are carried into effect. The President or the Executive
Vice President shall execute bonds, mortgages and other contracts requiring a
seal, under the seal of the corporation, except where required or permitted by
law to be otherwise signed and executed and except where the signing and
execution thereof shall be expressly delegated by the Board of Directors to
some other officer or agent of the corporation.
Section 8. Executive Vice President. In the absence of the
President or in the event of his inability or refusal to act, the Executive
Vice President, if any, shall perform the duties of the President, and when so
acting shall have all the powers of and be subject to all the restrictions upon
the President. The Executive Vice President shall perform such other duties
and have such other powers as the Board of Directors may from time to time
prescribe.
Section 9. Vice President. In the event of the President's and
the Executive-Vice President's inability to act, the Vice President, if any (or
in the event there be more than one Vice President, the Vice Presidents in the
order designated by the Board of Directors, or in the absence of any
designation, then in the order of their election) shall perform the duties of
the President and the Executive Vice President, and when so acting shall have
all the powers of and be subject to all the restrictions upon the President and
the Executive Vice President. The Vice President shall perform such other
duties and have such other powers as the Board of Directors may from time to
time prescribe.
Section 10. Secretary. The Secretary shall attend all meetings
of the Board of Directors and all meetings of the stockholders and record all
the proceedings of the meetings of the corporation and of the Board of
Directors in a book to be kept for that purpose and shall perform like duties
for the standing committees when required. He shall give, or cause to be
given, notice of all meetings of the stockholders and special meetings of the
Board of Directors, and shall perform such other duties as may be prescribed by
the Board of Directors or President, under whose supervision he shall be
subject. He shall have custody of the corporate seal of the corporation and
he, or an Assistant Secretary, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by his
signature or by the signature of such Assistant Secretary. The Board of
Directors may give general authority to any other officer to affix the seal of
the corporation and to attest the affixing by his signature.
Section 11. Assistant Secretary. The Assistant Secretary, or if
there be more than one (1), the Assistant Secretaries in the order determined
by the Board of Directors (or if there be no such determination, then in the
order of their election) shall, in the absence of the Secretary or in the event
of his inability or refusal to act, perform the duties and exercise the powers
of the Secretary and shall perform such other duties and have such other powers
as the Board of Directors may from time to time prescribe.
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Section 12. Treasurer. The Treasurer shall have the custody of
the corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the corporation as may be
ordered by the Board of Directors, President or Chief Operating Officer, taking
proper vouchers for such disbursements, and shall render to the President,
Chief Operating Officer and the Board of Directors, at its regular meetings, or
when the Board of Directors so requires, an account of all his transactions as
Treasurer and of the financial condition of the corporation. If required by
the Board of Directors, the Treasurer shall give the corporation a bond (which
shall be renewed every six (6) years) in such sum and with such surety or
sureties as shall be satisfactory to the Board of Directors for the faithful
performance of the duties of his office and for the restoration to the
corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the corporation.
ARTICLE VI
CAPITAL STOCK
Section 1. Certificates. Every holder of stock in the
corporation shall be entitled to have a certificate, signed by, or in the name
of the corporation by, the Chairman or Vice Chairman of the Board of Directors,
or the President or a Vice President and the Treasurer or the Secretary or an
Assistant Secretary of the corporation, certifying the number of shares owned
by him in the corporation. Certificates may be issued for partly paid shares
and in such case upon the face or back of the certificates issued to represent
any such partly paid shares, the total amount of the consideration to be paid
therefor and the amount paid thereon shall be specified.
Section 2. Class or Series. If the corporation shall be
authorized to issue more than one class of stock or more than one series of any
class, the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights shall be set forth in full or summarized on the face or back of the
certificate which the corporation shall issue to represent such class or series
of stock, provided that, except as otherwise provided in Section 202 of the
General Corporation Law of Delaware, in lieu of the foregoing requirements,
there may be set forth on the face or back of the certificate which the
corporation shall issue to represent such class or series of stock, a statement
that the corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
Section 3. Signature. Any of or all of the signatures on the
certificate may be facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent
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or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer agent or
registrar at the date of issue.
Section 4. Lost Certificates. The Board of Directors may direct
a new certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
Section 5. Transfer of Stock. Upon surrender to the corporation
or the transfer agent of the corporation of a certificate for shares duly
endorsed or accompanied by proper evidence of succession, assignation or
authority to transfer, it shall be the duty of the corporation to issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
Section 6. Record Date. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholder or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock
or for the purpose of any other lawful action, the Board of Directors may fix,
in advance, a record date, which shall not be more than sixty (60) nor less
than ten (10) days before the date of such meeting, nor more than sixty (60)
days prior to any other action. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to
any adjournment of the meeting; provided, however, that the Board of Directors
may fix a new record date for the adjourned meeting.
Section 7. Registered Stockholders. The corporation shall be
entitled to recognize the exclusive right of a person registered on its books
as the owner of shares to receive dividends, and to vote as such owner, and to
hold liable for calls and assessments a person registered on its books as the
owner of shares and shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Delaware.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the
corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of
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Directors at any regular or special meeting, pursuant to law. Dividends may be
paid in cash, in property or in shares of capital stock, subject to the
provisions of the Certificate of Incorporation. Before payment of any
dividend, there may be set aside out of any funds of the corporation available
for dividends such sum or sums as the Board of Directors from time to time, in
their absolute discretion, think proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the corporation, or for such other purposes as the Board of
Directors shall think conducive to the interest of the corporation, and the
Board of Directors may modify or abolish any such reserve in the manner in
which it was created.
Section 2. Checks. All checks or demands for money and notes of
the corporation shall be signed by such officer or officers or such other
person or persons as the Board of Directors may from time to time designate.
Section 3. Fiscal Year. The fiscal year of the corporation
shall be fixed by resolution of the Board of Directors.
Section 4. Seal. The Board of Directors may adopt a corporate
seal having inscribed thereon the name of the corporation, the year of its
organization and the words "Corporate Seal, Delaware". The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.
Section 5. Loans. The Board of Directors of this corporation
may, without stockholder approval, authorize loans to, or guaranty obligations
of, or otherwise assist, including, without limitation, the adoption of
employee benefit plans under which loans and guarantees may be made, any
officer or other employee of the corporation or of its subsidiary, including
any officer or employee who is a director of the corporation or its subsidiary,
whenever, in the judgment of the Board of Directors, such loan, guaranty or
assistance may reasonably be expected to benefit the corporation. The loan,
guaranty or other assistance may be with or without interest, and may be
unsecured, or secured in such manner as the Board of Directors shall approve,
including, without limitation, a pledge of shares of stock of the corporation.
ARTICLE VIII
INDEMNIFICATION
Section 1. Scope. The corporation shall, to the fullest extent
permitted by Section 145 of the Delaware General Corporation Law, as that
Section may be amended and supplemented from time to time, indemnify any
director, officer, employee or agent of the corporation, against expenses
(including attorneys' fees), judgments, fines, amounts paid in settlement
and/or other matters referred to in or covered by that Section, by reason of
the fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise.
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Section 2. Advancing Expenses. Expenses incurred by a director
of the corporation in defending a civil or criminal action, suit or proceeding
by reason of the fact that he is or was a director, officer, employee or agent
of the corporation (or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise) shall be paid by the corporation in advance
of the final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
corporation as authorized by relevant provisions of the Delaware General
Corporation Law; provided, however, the corporation shall not be required to
advance such expenses to a director (i) who commences any action, suit or
proceeding as a plaintiff unless such advance is specifically approved by a
majority of the Board of Directors, or (ii) who is a party to an action, suit
or proceeding brought by the corporation and approved by a majority of the
Board of Directors which alleges willful misappropriation of corporate assets
by such director, disclosure of confidential information in violation of such
director's fiduciary or contractual obligations to the corporation, or any
other willful and deliberate breach in bad faith of such director's duty to the
corporation or its stockholders.
Section 3. Liability Offset. The corporation's obligation to
provide indemnification under this Article VIII shall be offset to the extent
the indemnified party is indemnified by any other source including, but not
limited to, any applicable insurance coverage under a policy maintained by the
corporation, the indemnified party or any other person.
Section 4. Continuing Obligation. The provisions of this
Article VIII shall be deemed to be a contract between the corporation and each
director of the corporation who serves in such capacity at any time while this
Bylaw is in effect, and any repeal or modification thereof shall not affect any
rights or obligations then existing with respect to any state of facts then or
theretofore existing or any action, suit or proceeding theretofore or
thereafter brought based in whole or in part upon any such state of facts.
Section 5. Nonexclusive. The indemnification and advancement of
expenses provided for in this Article VIII shall (i) not be deemed exclusive of
any other rights to which those indemnified may be entitled under any Bylaw,
agreement or vote of stockholders or disinterested directors or otherwise, both
as to action in their official capacities and as to action in another capacity
while holding such office, (ii) continue as to a person who has ceased to be a
director and (iii) inure to the benefit of the heirs, executors and
administrators of such a person.
Section 6. Other Persons. In addition to the indemnification
rights of directors, officers, employees, or agents of the corporation, the
Board of Directors in its discretion shall have the power on behalf of the
corporation to indemnify any other person made a party to any action, suit or
proceeding who the corporation may indemnify under Section 145 of the Delaware
General Corporation Law.
Section 7. Definitions. The phrases and terms set forth in this
Article VIII shall be given the same meaning as the identical terms and phrases
are given in Section 145 of the
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Delaware General Corporation Law, as that Section may be amended and
supplemented from time to time.
ARTICLE IX
AMENDMENTS
Except as otherwise provided in the Certificate of Incorporation,
these Bylaws may be altered, amended or repealed, or new Bylaws may be adopted,
by the holders of a majority of the outstanding voting shares or by the Board
of Directors, when such power is conferred upon the Board of Directors by the
Certificate of Incorporation, at any regular meeting of the stockholders or of
the Board of Directors or at any special meeting of the stockholders or of the
Board of Directors if notice of such alteration, amendment, repeal or adoption
of new Bylaws be contained in the notice of such special meeting. If the power
to adopt, amend or repeal Bylaws is conferred upon the Board of Directors by
the Certificate of Incorporation, it shall not divest or limit the power of the
stockholders to adopt, amend or repeal Bylaws.
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<PAGE> 1
EXHIBIT 10.1
INDEMNIFICATION AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into this
____ day of _______________, 1996 between ATL Products, Inc., a Delaware
corporation (the "Company") and ____________________ ("Indemnitee").
WITNESSETH THAT:
WHEREAS, Indemnitee performs a valuable service for the
Company; and
WHEREAS, the Board of Directors of the Company have adopted a
Certificate of Incorporation (the "Certificate") permitting the Board of
Directors to indemnify the [officers] [directors] of the Company; and
WHEREAS, the Certificate and Section 145 of the Delaware
General Corporation Law, as amended ("Law"), by their nonexclusive nature
permit contracts between the Company and the [officers] [directors] of the
Company with respect to indemnification of such [officers] [directors]; and
WHEREAS, in accordance with the authorization as provided by
the Law, the Company may purchase and maintain a policy or policies of
director's and officer's liability insurance ("D & O Insurance"), covering
certain liabilities which may be incurred by its [officers] [directors] in the
performance of their obligations as [officers] [directors] of the Company; and
WHEREAS, as a result of recent developments affecting the
terms, scope and availability of D & O Insurance there exists general
uncertainty as to the extent of protection afforded Company [officers]
[directors] by such D & O Insurance and said uncertainty also exists under
statutory and bylaw indemnification provisions; and
WHEREAS, in recognition of past services and in order to
induce Indemnitee to continue to serve as a[n officer] [director] of the
Company, the Company has determined and agreed to enter into this contract with
Indemnitee;
NOW, THEREFORE, in consideration of Indemnitee's continued
service as a[n officer] [director] after the date hereof, the parties hereto
agree as follows:
1. INDEMNITY OF INDEMNITEE. The Company hereby agrees
to hold harmless and indemnify Indemnitee to the full extent authorized or
permitted by the provisions of the Law, as such may be amended from time to
time, and Article [14] of the [Certificate], as such may be amended. In
furtherance of the foregoing indemnification, and without limiting the
generality thereof:
<PAGE> 2
(a) Proceedings Other Than Proceedings by or in
the Right of the Company. Indemnitee shall be entitled to the rights of
indemnification provided in this Section 1(a) if, by reason of his Corporate
Status (as hereinafter defined), he is, or is threatened to be made, a party to
or participant in any Proceeding (as hereinafter defined) other than a
Proceeding by or in the right of the Company. Pursuant to this Section 1(a),
Indemnitee shall be indemnified against all Expenses (as hereinafter defined),
judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such Proceeding
or any claim, issue or matter therein, if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Company and, with respect to any criminal Proceeding, had no reasonable
cause to believe his conduct was unlawful.
(b) Proceedings by or in the Right of the
Company. Indemnitee shall be entitled to the rights of indemnification
provided in this Section 1(b) if, by reason of his Corporate Status, he is, or
is threatened to be made, a party to or participant in any Proceeding brought
by or in the right of the Company to procure a judgment in its favor. Pursuant
to this Section 1(b), Indemnitee shall be indemnified against all Expenses
actually and reasonably incurred by him or on his behalf in connection with
such Proceeding if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Company;
provided, however, that, if applicable law so provides, no indemnification
against such Expenses shall be made in respect of any claim, issue or matter in
such Proceeding as to which Indemnitee shall have been adjudged to be liable to
the Company unless and to the extent that the Court of Chancery of the State of
Delaware, or the court in which such Proceeding shall have been brought or is
pending, shall determine that such indemnification may be made.
(c) Indemnification for Expenses of a Party Who
is Wholly or Partly Successful. Notwithstanding any other provision of this
Agreement, to the extent that Indemnitee is, by reason of his Corporate Status,
a party to and is successful, on the merits or otherwise, in any Proceeding, he
shall be indemnified to the maximum extent permitted by law against all
Expenses actually and reasonably incurred by him or on his behalf in connection
therewith. If Indemnitee is not wholly successful in such Proceeding but is
successful, on the merits or otherwise, as to one or more but less than all
claims, issues or matters in such Proceeding, the Company shall indemnify
Indemnitee against all Expenses actually and reasonably incurred by him or on
his behalf in connection with each successfully resolved claim, issue or
matter. For purposes of this Section and without limitation, the termination
of any claim, issue or matter in such a Proceeding by dismissal, with or
without prejudice, shall be deemed to be a successful result as to such claim,
issue or matter.
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<PAGE> 3
2. ADDITIONAL INDEMNITY.
(a) Subject only to the exclusions set forth in
Section 2(b) hereof, the Company hereby further agrees to hold harmless and
indemnify Indemnitee against any and all Expenses, judgments, fines and amounts
paid in settlement actually and reasonably incurred by Indemnitee in connection
with any Proceeding (including an action by or on behalf of the Company) to
which Indemnitee is, was or at any time becomes a party, or is threatened to be
made a party, by reason of his Corporate Status; provided, however, that with
respect to actions by or on behalf of the Company, indemnification of
Indemnitee against any judgments shall be made by the Company only as
authorized in the specific case upon a determination that Indemnitee acted in
good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Company; and
(b) No indemnity pursuant to this Section 2 shall
be paid by the Company:
(i) In respect to remuneration paid to
Indemnitee if it shall be determined by a final judgment or other final
adjudication that such remuneration was in violation of law;
(ii) On account of any suit in which
judgment is rendered against Indemnitee for an accounting of profits made from
the purchase or sale by Indemnitee of securities of the Company pursuant to the
provisions of Section 16(b) of the Securities Exchange Act of 1934 and
amendments thereto or similar provisions of any federal, state or local
statutory law;
(iii) On account of Indemnitee's conduct
which is finally adjudged to have been knowingly fraudulent or deliberately
dishonest, or to constitute willful misconduct; or
(iv) If a final decision by a court
having jurisdiction in the matter shall determine that such indemnification is
not lawful.
3. CONTRIBUTION. If the indemnification provided in
Sections 1 and 2 is unavailable and may not be paid to Indemnitee for any
reason other than those set forth in paragraphs (i), (ii) and (iii) of Section
2(b), then in respect to any Proceeding in which the Company is jointly liable
with Indemnitee (or would be if joined in such Proceeding), the Company shall
contribute to the amount of Expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred and paid or payable by Indemnitee
in such proportion as is appropriate to reflect (i) the relative benefits
received by the Company on the one hand and by the Indemnitee on the other hand
from the transaction from which such Proceeding arose, and (ii) the relative
fault of the Company on the one hand and of the
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<PAGE> 4
Indemnitee on the other hand in connection with the events which resulted in
such Expenses, judgments, fines or settlement amounts, as well as any other
relevant equitable considerations. The relative fault of the Company on the
one hand and of the Indemnitee on the other hand shall be determined by
reference to, among other things, the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent the circumstances
resulting in such Expenses, judgments, fines or settlement amounts. The
Company agrees that it would not be just and equitable if contribution pursuant
to this Section 3 were determined by pro rata allocation or any other method of
allocation which does not take account of the foregoing equitable
considerations.
4. INDEMNIFICATION FOR EXPENSES OF A WITNESS.
Notwithstanding any other provision of this Agreement, to the extent that
Indemnitee is, by reason of his Corporate Status, a witness in any Proceeding
to which Indemnitee is not a party, he shall be indemnified against all
Expenses actually and reasonably incurred by him or on his behalf in connection
therewith.
5. ADVANCEMENT OF EXPENSES. Notwithstanding any other
provision of this Agreement, the Company shall advance all reasonable Expenses
incurred by or on behalf of Indemnitee in connection with any Proceeding by
reason of Indemnitee's Corporate Status within ten days after the receipt by
the Company of a statement or statements from Indemnitee requesting such
advance or advances from time to time, whether prior to or after final
disposition of such Proceeding. Such statement or statements shall reasonably
evidence the Expenses incurred by Indemnitee and shall include or be preceded
or accompanied by an undertaking by or on behalf of Indemnitee to repay any
Expenses advanced if it shall ultimately be determined that Indemnitee is not
entitled to be indemnified against such Expenses. Any advances and
undertakings to repay pursuant to this Section 5 shall be unsecured and
interest free. Notwithstanding the foregoing, the obligation of the Company to
advance Expenses pursuant to this Section 5 shall be subject to the condition
that, if, when and to the extent that the Company determines that Indemnitee
would not be permitted to be indemnified under applicable law, the Company
shall be entitled to be reimbursed, within thirty (30) days of such
determination, by Indemnitee (who hereby agrees to reimburse the Company) for
all such amounts theretofore paid; provided, however, that if Indemnitee has
commenced or thereafter commences legal proceedings in a court of competent
jurisdiction to secure a determination that Indemnitee should be indemnified
under applicable law, any determination made by the Company that Indemnitee
would not be permitted to be indemnified under applicable law shall not be
binding and Indemnitee shall not be required to reimburse the Company for any
advance of Expenses until a final judicial determination is made with respect
thereto (as to which all rights of appeal therefrom have been exhausted or
lapsed).
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<PAGE> 5
6. PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO
INDEMNIFICATION.
(a) To obtain indemnification (including, but not
limited to, the advancement of Expenses and contribution by the Company) under
this Agreement, Indemnitee shall submit to the Company a written request,
including therein or therewith such documentation and information as is
reasonably available to Indemnitee and is reasonably necessary to determine
whether and to what extent Indemnitee is entitled to indemnification. The
Secretary of the Company shall, promptly upon receipt of such a request for
indemnification, advise the Board of Directors in writing that Indemnitee has
requested indemnification.
(b) Upon written request by Indemnitee for
indemnification pursuant to the first sentence of Section 6(a) hereof, a
determination, if required by applicable law, with respect to Indemnitee's
entitlement thereto shall be made in the specific case: (i) if a Change in
Control (as hereinafter defined) shall have occurred, by Independent Counsel
(as hereinafter defined) in a written opinion to the Board of Directors, a copy
of which shall be delivered to Indemnitee (unless Indemnitee shall request that
such determination be made by the Board of Directors or the stockholders, in
which case the determination shall be made in the manner provided in Clause
(ii) below), or (ii) if a Change in Control shall not have occurred, (A) by the
Board of Directors by a majority vote of a quorum consisting of Disinterested
Directors (as hereinafter defined), or (B) if a quorum of the Board of
Directors consisting of Disinterested Directors is not obtainable or, even if
obtainable, said Disinterested Directors so direct, by Independent Counsel in a
written opinion to the Board of Directors, a copy of which shall be delivered
to Indemnitee, or (C) if so directed by said Disinterested Directors, by the
stockholders of the Company; and, if it is determined that Indemnitee is
entitled to indemnification, payment to Indemnitee shall be made within ten
(10) days after such determination. Indemnitee shall cooperate with the
person, persons or entity making such determination with respect to
Indemnitee's entitlement to indemnification, including providing to such
person, persons or entity upon reasonable advance request any documentation or
information which is not privileged or otherwise protected from disclosure and
which is reasonably available to Indemnitee and reasonably necessary to such
determination. Any Independent Counsel, member of the Board of Directors, or
stockholder of the Company shall act reasonably and in good faith in making a
determination under the Agreement of the Indemnitee's entitlement to
indemnification. Any costs or expenses (including attorneys' fees and
disbursements) incurred by Indemnitee in so cooperating with the person,
persons or entity making such determination shall be borne by the Company
(irrespective of the determination as to Indemnitee's entitlement to
indemnification) and the Company hereby indemnifies and agrees to hold
Indemnitee harmless therefrom.
(c) If the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section 6(b)
hereof, the Independent Counsel shall be selected as provided in this Section
6(c). If a Change in Control shall not have occurred,
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<PAGE> 6
the Independent Counsel shall be selected by the Board of Directors, and the
Company shall give written notice to Indemnitee advising him of the identity of
the Independent Counsel so selected. If a Change in Control shall have
occurred, the Independent Counsel shall be selected by Indemnitee (unless
Indemnitee shall request that such selection be made by the Board of Directors,
in which event the preceding sentence shall apply), and Indemnitee shall give
written notice to the Company advising it of the identity of the Independent
Counsel so selected. In either event, Indemnitee or the Company, as the case
may be, may, within 10 days after such written notice of selection shall have
been given, deliver to the Company or to Indemnitee, as the case may be, a
written objection to such selection; provided, however, that such objection may
be asserted only on the ground that the Independent Counsel so selected does
not meet the requirements of "Independent Counsel" as defined in Section 14 of
this Agreement, and the objection shall set forth with particularity the
factual basis of such assertion. Absent a proper and timely objection, the
person so selected shall act as Independent Counsel. If a written objection is
made and substantiated, the Independent Counsel selected may not serve as
Independent Counsel unless and until such objection is withdrawn or a court has
determined that such objection is without merit. If, within 20 days after
submission by Indemnitee of a written request for indemnification pursuant to
Section 6(a) hereof, no Independent Counsel shall have been selected and not
objected to, either the Company or Indemnitee may petition the Court of
Chancery of the State of Delaware or other court of competent jurisdiction for
resolution of any objection which shall have been made by the Company or
Indemnitee to the other's selection of Independent Counsel and/or for the
appointment as Independent Counsel of a person selected by the court or by such
other person as the court shall designate, and the person with respect to whom
all objections are so resolved or the person so appointed shall act as
Independent Counsel under Section 6(b) hereof. The Company shall pay any and
all reasonable fees and expenses of Independent Counsel incurred by such
Independent Counsel in connection with acting pursuant to Section 6(b) hereof,
and the Company shall pay all reasonable fees and expenses incident to the
procedures of this Section 6(c), regardless of the manner in which such
Independent Counsel was selected or appointed. Upon the due commencement of
any judicial proceeding or arbitration pursuant to Section 8(a)(iii) of this
Agreement, Independent Counsel shall be discharged and relieved of any further
responsibility in such capacity (subject to the applicable standards of
professional conduct then prevailing).
(d) The Company shall not be required to obtain
the consent of the Indemnitee to the settlement of any Proceeding which the
Company has undertaken to defend if the Company assumes full and sole
responsibility for such settlement and the settlement grants the Indemnitee a
complete and unqualified release in respect of the potential liability.
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<PAGE> 7
7. PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS.
(a) In making a determination with respect to
entitlement to indemnification hereunder, the person or persons or entity
making such determination shall presume that Indemnitee is entitled to
indemnification under this Agreement if Indemnitee has submitted a request for
indemnification in accordance with Section 6(a) of this Agreement, and the
Company shall have the burden of proof to overcome that presumption in
connection with the making by any person, persons or entity of any
determination contrary to that presumption.
(b) If the person, persons or entity empowered or
selected under Section 6 of this Agreement to determine whether Indemnitee is
entitled to indemnification shall not have made a determination within thirty
(30) days after receipt by the Company of the request therefor, the requisite
determination of entitlement to indemnification shall be deemed to have been
made and Indemnitee shall be entitled to such indemnification, absent (i) a
misstatement by Indemnitee of a material fact, or an omission of a material
fact necessary to make Indemnitee's statement not materially misleading, in
connection with the request for indemnification, or (ii) a prohibition of such
indemnification under applicable law; provided, however, that such 30-day
period may be extended for a reasonable time, not to exceed an additional
fifteen (15) days, if the person, persons or entity making the determination
with respect to entitlement to indemnification in good faith requires such
additional time for the obtaining or evaluating documentation and/or
information relating thereto; and provided, further, that the foregoing
provisions of this Section 7(b) shall not apply (i) if the determination of
entitlement to indemnification is to be made by the stockholders pursuant to
Section 6(b) of this Agreement and if (A) within fifteen (15) days after
receipt by the Company of the request for such determination the Board of
Directors or the Disinterested Directors, if appropriate, resolve to submit
such determination to the stockholders for their consideration at an annual
meeting thereof to be held within seventy five (75) days after such receipt and
such determination is made thereat, or (B) a special meeting of stockholders is
called within fifteen (15) days after such receipt for the purpose of making
such determination, such meeting is held for such purpose within sixty (60)
days after having been so called and such determination is made thereat, or
(ii) if the determination of entitlement to indemnification is to be made by
Independent Counsel pursuant to Section 6(b) of this Agreement.
(c) The termination of any Proceeding or of any
claim, issue or matter therein, by judgment, order, settlement (with or without
court approval), conviction, or upon a plea of nolo contendere or its
equivalent, shall not (except as otherwise expressly provided in this
Agreement) of itself adversely affect the right of Indemnitee to
indemnification or create a presumption that Indemnitee did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Company or, with respect to any criminal Proceeding,
that Indemnitee had reasonable cause to believe that his conduct was unlawful.
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<PAGE> 8
(d) For purposes of any determination of good
faith, Indemnitee shall be deemed to have acted in good faith if Indemnitee's
action is based on the records or books of account of the Enterprise (as
hereinafter defined), including financial statements, or on information
supplied to Indemnitee by the [officers] [directors] of the Enterprise in the
course of their duties, or on the advice of legal counsel for the Enterprise or
on information or records given or reports made to the Enterprise by an
independent certified public accountant or by an appraiser or other expert
selected with reasonable care by the Enterprise. In addition, the knowledge
and/or actions, or failure to act, of any director, officer, agent or employee
of the Enterprise shall not be imputed to Indemnitee for purposes of
determining the right to indemnification under this Agreement. The provisions
of this Section 7(d) shall not be deemed to be exclusive or to limit in any way
the other circumstances in which the Indemnitee may be deemed to have met the
applicable standard of conduct set forth in this Agreement.
8. REMEDIES OF INDEMNITEE.
(a) In the event that (i) a determination is made
pursuant to Section 6 of this Agreement that Indemnitee is not entitled to
indemnification under this Agreement, (ii) advancement of Expenses is not
timely made pursuant to Section 5 of this Agreement, (iii) no determination of
entitlement to indemnification shall have been made pursuant to Section 6(b) of
this Agreement within 90 days after receipt by the Company of the request for
indemnification, (iv) payment of indemnification is not made pursuant to
Section 3 or 4 of this Agreement within ten (10) days after receipt by the
Company of a written request therefor, or (v) payment of indemnification is not
made within ten (10) days after a determination has been made that Indemnitee
is entitled to indemnification or such determination is deemed to have been
made pursuant to Section 6 or 7 of this Agreement, Indemnitee shall be entitled
to an adjudication in an appropriate court of the State of Delaware, or in any
other court of competent jurisdiction, of his entitlement to such
indemnification. Alternatively, Indemnitee, at his option, may seek an award
in arbitration to be conducted by a single arbitrator pursuant to the
Commercial Arbitration Rules of the American Arbitration Association.
Indemnitee shall commence such proceeding seeking an adjudication or an award
in arbitration within 180 days following the date on which Indemnitee first has
the right to commence such proceeding pursuant to this Section 8(a). The
Company shall not oppose Indemnitee's right to seek any such adjudication or
award in arbitration.
(b) In the event that a determination shall have
been made pursuant to Section 6(b) of this Agreement that Indemnitee is not
entitled to indemnification, any judicial proceeding or arbitration commenced
pursuant to this Section 8 shall be conducted in all respects as a de novo
trial, or arbitration, on the merits and Indemnitee shall not be prejudiced by
reason of that adverse determination.
(c) If a determination shall have been made
pursuant to Section 6(b) of this Agreement that Indemnitee is entitled to
indemnification, the Company shall be bound
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<PAGE> 9
by such determination in any judicial proceeding or arbitration commenced
pursuant to this Section 8, absent (i) a misstatement by Indemnitee of a
material fact, or an omission of a material fact necessary to make Indemnitee's
statement not materially misleading, in connection with the request for
indemnification, or (ii) a prohibition of such indemnification under applicable
law.
(d) In the event that Indemnitee, pursuant to
this Section 8, seeks a judicial adjudication of or an award in arbitration to
enforce his rights under, or to recover damages for breach of, this Agreement,
Indemnitee shall be entitled to recover from the Company, and shall be
indemnified by the Company against, any and all expenses (of the types
described in the definition of Expenses in Section 16 of this Agreement)
actually and reasonably incurred by him in such judicial adjudication or
arbitration, but only if he prevails therein. If it shall be determined in
said judicial adjudication or arbitration that Indemnitee is entitled to
receive part but not all of the indemnification sought, the expenses incurred
by Indemnitee in connection with such judicial adjudication or arbitration
shall be appropriately prorated. The Company shall indemnify Indemnitee
against any and all expenses and, if requested by Indemnitee, shall (within ten
(10) days after receipt by the Company of a written request therefor) advance
such expenses to Indemnitee, which are incurred by Indemnitee in connection
with any action brought by Indemnitee to recover under any directors' and
officers' liability insurance policies maintained by the Company, regardless of
whether Indemnitee ultimately is determined to be entitled to such
indemnification, advancement of expenses or insurance recovery, as the case may
be.
(e) The Company shall be precluded from asserting
in any judicial proceeding or arbitration commenced pursuant to this Section 8
that the procedures and presumptions of this Agreement are not valid, binding
and enforceable and shall stipulate in any such court or before any such
arbitrator that the Company is bound by all the provisions of this Agreement.
9. NON-EXCLUSIVITY; SURVIVAL OF RIGHTS; INSURANCE;
SUBROGATION.
(a) The rights of indemnification as provided by
this Agreement shall not be deemed exclusive of any other rights to which
Indemnitee may at any time be entitled under applicable law, the Certificate,
any agreement, a vote of stockholders or a resolution of directors, or
otherwise. No amendment, alteration or repeal of this Agreement or of any
provision hereof shall limit or restrict any right of Indemnitee under this
Agreement in respect of any action taken or omitted by such Indemnitee in his
Corporate Status prior to such amendment, alteration or repeal. To the extent
that a change in the Law, whether by statute or judicial decision, permits
greater indemnification than would be afforded currently under the Certificate
and this Agreement, it is the intent of the parties hereto that Indemnitee
shall enjoy by this Agreement the greater benefits so afforded by such change.
No right or remedy herein conferred is intended to be exclusive of any other
right or remedy, and every other right and
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<PAGE> 10
remedy shall be cumulative and in addition to every other right and remedy
given hereunder or now or hereafter existing at law or in equity or otherwise.
The assertion or employment of any right or remedy hereunder, or otherwise,
shall not prevent the concurrent assertion or employment of any other right or
remedy.
(b) To the extent that the Company maintains an
insurance policy or policies providing liability insurance for directors,
officers, employees, or agents or fiduciaries of the Company or of any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise which such person serves at the request of the Company, Indemnitee
shall be covered by such policy or policies in accordance with its or their
terms to the maximum extent of the coverage available for any such director,
officer, employee or agent under such policy or policies.
(c) In the event of any payment under this
Agreement, the Company shall be subrogated to the extent of such payment to all
of the rights of recovery of Indemnitee, who shall execute all papers required
and take all action necessary to secure such rights, including execution of
such documents as are necessary to enable the Company to bring suit to enforce
such rights.
(d) The Company shall not be liable under this
Agreement to make any payment of amounts otherwise indemnifiable hereunder if
and to the extent that Indemnitee has otherwise actually received such payment
under any insurance policy, contract, agreement or otherwise.
10. EXCEPTION TO RIGHT OF INDEMNIFICATION.
Notwithstanding any other provision of this Agreement, Indemnitee shall not be
entitled to indemnification under this Agreement with respect to any Proceeding
brought by Indemnitee, or any claim therein, unless (a) the bringing of such
Proceeding or making of such claim shall have been approved by the Board of
Directors or (b) such Proceeding is being brought by the Indemnitee to assert
his rights under this Agreement.
11. DURATION OF AGREEMENT. All agreements and
obligations of the Company contained herein shall continue during the period
Indemnitee is a[n officer] [director] of the Company (or is or was serving at
the request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise) and shall
continue thereafter so long as Indemnitee shall be subject to any Proceeding
(or any proceeding commenced under Section 8 hereof) by reason of his Corporate
Status, whether or not he is acting or serving in any such capacity at the time
any liability or expense is incurred for which indemnification can be provided
under this Agreement. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and their respective
successors (including any direct or indirect successor by purchase, merger,
consolidation or otherwise to all or substantially all of the business or
assets of the Company),
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assigns, spouses, heirs, executors and personal and legal representatives.
This Agreement shall continue in effect regardless of whether Indemnitee
continues to serve as a[n officer] [director] of the Company or any other
enterprise at the Company's request.
12. SECURITY. To the extent requested by the Indemnitee
and approved by the Board of Directors, the Company may at any time and from
time to time provide security to the Indemnitee for the Company's obligations
hereunder through an irrevocable bank line of credit, funded trust or other
collateral. Any such security, once provided to the Indemnitee, may not be
revoked or released without the prior written consent of the Indemnitee.
13. ENFORCEMENT.
(a) The Company expressly confirms and agrees
that it has entered into this Agreement and assumed the obligations imposed on
it hereby in order to induce Indemnitee to serve as a[n officer] [director] of
the Company, and the Company acknowledges that Indemnitee is relying upon this
Agreement in serving as a[n officer] [director] of the Company.
(b) This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements and understandings, oral, written and
implied, between the parties hereto with respect to the subject matter hereof.
14. DEFINITIONS. For purposes of this Agreement:
(a) "Change in Control" means a change in control
of the Company occurring after the date of this Agreement of a nature that
would be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A (or in response to any similar item on any similar schedule or
form) promulgated under the Securities Exchange Act of 1934 (the "Act"),
whether or not the Company is then subject to such reporting requirement;
provided, however, that, without limitation, such a Change in Control shall be
deemed to have occurred if after the date of this Agreement (i) any "person"
(as such term is used in Sections 13(d) and 14(d) of the Act, as amended) other
than a trustee or other fiduciary holding securities under an employee benefit
plan of the Company or a corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Act), directly or indirectly, of securities of
the Company representing 15% or more of the combined voting power of the
Company's then outstanding securities (other than any such person or any
affiliate thereof that is such a 15% beneficial owner as of the date hereof)
without the prior approval of at least two-thirds of the members of the Board
of Directors in office immediately prior to such person attaining such
percentage interest; (ii) there occurs a proxy contest, or the Company is a
party to a merger, consolidation, sale of assets, plan of
11
<PAGE> 12
liquidation or other reorganization, as a consequence of which members of the
Board of Directors in office immediately prior to such transaction or event
constitute less than a majority of the Board of Directors thereafter; or (iii)
during any period of two consecutive years, other than as a result of an event
described in clause (a)(ii) of this Section 16, individuals who at the
beginning of such period constituted the Board of Directors (including for this
purpose any new director whose election or nomination for election by the
Company's stockholders was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of such
period) cease for any reason to constitute at least a majority of the Board of
Directors. A Change in Control shall not be deemed to have occurred under item
(i) above if the "person" described under item (i) is entitled to report its
ownership on Schedule 13G promulgated under the Act and such person is able to
represent that it acquired such securities in the ordinary course of its
business and not with the purpose nor with the effect of changing or
influencing the control of the Company, nor in connection with or as a
participant in any transaction having such purpose or effect. If the "person"
referred to in the previous sentence would at any time not be entitled to
continue to report such ownership on Schedule 13G pursuant to Rule
13d-1(b)(3)(i)(B) of the Act, then a Change in Control shall be deemed to have
occurred at such time.
(b) "Corporate Status" describes the status of a
person who is or was a director, officer, employee or agent or fiduciary of the
Company or of any other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise which such person is or was serving
at the express written request of the Company.
(c) "Disinterested Director" means a director of
the Company who is not and was not a party to the Proceeding in respect of
which indemnification is sought by Indemnitee.
(d) "Enterprise" shall mean the Company and any
other corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise of which Indemnitee is or was serving at the express written
request of the Company as a director, officer, employee, agent or fiduciary.
(e) "Expenses" shall include all reasonable
attorneys' fees, retainers, court costs, transcript costs, fees of experts,
witness fees, travel expenses, duplicating costs, printing and binding costs,
telephone charges, postage, delivery service fees, and all other disbursements
or expenses of the types customarily incurred in connection with prosecuting,
defending, preparing to prosecute or defend, investigating, participating, or
being or preparing to be a witness in a Proceeding.
(f) "Independent Counsel" means a law firm, or a
member of a law firm, that is experienced in matters of corporation law and
neither presently is, nor in the past five years has been, retained to
represent: (i) the Company or Indemnitee in any matter material
12
<PAGE> 13
to either such party (other than with respect to matters concerning the
Indemnitee under this Agreement, or of other indemnitees under similar
indemnification agreements), or (ii) any other party to the Proceeding giving
rise to a claim for indemnification hereunder. Notwithstanding the foregoing,
the term "Independent Counsel" shall not include any person who, under the
applicable standards of professional conduct then prevailing, would have a
conflict of interest in representing either the Company or Indemnitee in an
action to determine Indemnitee's rights under this Agreement. The Company
agrees to pay the reasonable fees of the Independent Counsel referred to above
and to fully indemnify such counsel against any and all Expenses, claims,
liabilities and damages arising out of or relating to this Agreement or its
engagement pursuant hereto.
(g) "Proceeding" includes any threatened, pending
or completed action, suit, arbitration, alternate dispute resolution mechanism,
investigation, inquiry, administrative hearing or any other actual, threatened
or completed proceeding, whether brought by or in the right of the Company or
otherwise and whether civil, criminal, administrative or investigative, in
which Indemnitee was, is or will be involved as a party or otherwise, by reason
of the fact that Indemnitee is or was a[n officer] [director] of the Company,
by reason of any action taken by him or of any inaction on his part while
acting as a[n officer] [director] of the Company, or by reason of the fact that
he is or was serving at the request of the Company as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise; in each case whether or not he is acting or serving in any
such capacity at the time any liability or expense is incurred for which
indemnification can be provided under this Agreement; including one pending on
or before the date of this Agreement; and excluding one initiated by an
Indemnitee pursuant to Section 8 of this Agreement to enforce his rights under
this Agreement.
15. SEVERABILITY. If any provision or provisions of this
Agreement shall be held by a court of competent jurisdiction to be invalid,
void, illegal or otherwise unenforceable for any reason whatsoever: (a) the
validity, legality and enforceability of the remaining provisions of this
Agreement (including without limitation, each portion of any section of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that is not itself invalid, illegal or unenforceable) shall not
in any way be affected or impaired thereby and shall remain enforceable to the
fullest extent permitted by law; and (b) to the fullest extent possible, the
provisions of this Agreement (including, without limitation, each portion of
any section of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that is not itself invalid, illegal or unenforceable)
shall be construed so as to give effect to the intent manifested thereby.
16. MODIFICATION AND WAIVER. No supplement,
modification, termination or amendment of this Agreement shall be binding
unless executed in writing by both of the parties hereto. No waiver of any of
the provisions of this Agreement shall be deemed or shall constitute a waiver
of any other provisions hereof (whether or not similar) nor shall such waiver
constitute a continuing waiver.
13
<PAGE> 14
17. NOTICE BY INDEMNITEE. Indemnitee agrees promptly to
notify the Company in writing upon being served with any summons, citation,
subpoena, complaint, indictment, information or other document relating to any
Proceeding or matter which may be subject to indemnification covered hereunder.
The failure to so notify the Company shall not relieve the Company of any
obligation which it may have to the Indemnitee under this Agreement or
otherwise.
18. NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (i) delivered by hand and receipted for by the party to whom said
notice or other communication shall have been directed, or (ii) mailed by
certified or registered mail with postage prepaid, on the third business day
after the date on which it is so mailed:
(a) If to Indemnitee, to:
/s/ [SIGNATURE]
------------------------------
ATL Products, Inc.
1515 South Manchester Avenue
Anaheim, California 92802-2907
(b) If to the Company, to:
ATL Products, Inc.
1515 South Manchester Avenue
Anaheim, California 92802-2907
Attention: Chief Executive Officer
or to such other address as may have been furnished to Indemnitee by the
Company or to the Company by Indemnitee, as the case may be.
19. IDENTICAL COUNTERPARTS. This Agreement may be
executed in one or more counterparts, each of which shall for all purposes be
deemed to be an original but all of which together shall constitute one and the
same Agreement. Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced to evidence the existence of this
Agreement.
20. HEADINGS. The headings of the paragraphs of this
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction thereof.
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<PAGE> 15
21. GOVERNING LAW. The parties agree that this Agreement
shall be governed by, and construed and enforced in accordance with, the laws
of the State of Delaware without application of the conflict of laws principles
thereof.
22. GENDER. Use of the masculine pronoun shall be deemed
to include usage of the feminine pronoun where appropriate.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on and as of the day and year first above written.
ATL PRODUCTS, INC.
By /s/ KEVIN C. DALY
--------------------------------
Kevin C. Daly President and
Chief Executive Officer
-------------------------------------
, Indemnitee
--------------
15
<PAGE> 16
EXHIBIT A
PROMISSORY NOTE
$ , 1997
------------------- ---------- --
Anaheim, California
FOR VALUE RECEIVED, ATL Products, Inc., a Delaware corporation (the
"Borrower"), promises to pay to the order of Odetics, Inc., a Delaware
corporation (the "Lender"), at Anaheim, California, or at such other place as
the holder of this Note may from time to time designate in writing, the
principal amount of __________________________________ dollars ($_________),
with interest on the principal amount from the date of disbursement of the
principal amount at the rate per annum set forth in this Note, to be paid as
set forth in this Note.
The principal amount of this Note shall bear interest at the rate per
annum equal to Lender's cost of borrowing from the lesser of either of Lender's
primary banks, or Lender's principal bank, as the case may be during the term
of the Note, but shall not exceed the maximum rate of interest permitted by
applicable law.
The Borrower shall pay the principal amount of this Note and interest
thereon as follows: The Borrower shall pay towards the principal, an amount
equal to forty percent of the net proceeds of its initial public offering (the
"Offering") of its common stock, such amount not to exceed $10,000,000, upon
consummation of the Offering. The Borrower shall thereafter pay the remaining
principal balance of this Note in sixteen (16) equal annual installments at the
end of each calendar quarter commencing June 30, 1997 and continuing until all
principal and interest have been fully paid. Each payment of principal shall
be accompanied by a payment equal to all interest accrued on the outstanding
principal amount of the Note.
The Borrower shall have the right to prepay the principal sum of this
Note, or any part thereof or interest thereon, at any time without penalty or
prepayment charge.
<PAGE> 17
Both principal and interest shall be paid by Borrower in lawful money of
the United States of America in cash or in the form of a cashier's or certified
check.
If the Borrower shall default in the timely making of any payment of
principal and/or interest due hereunder and if the same remains unpaid for
fifteen (15) days following receipt by Borrower of written notice of such
default the Lender may declare the entire remaining indebtedness owing
hereunder, including any accrued interest, to become immediately due and
payable.
Notwithstanding anything to the contrary in this Note, the total
liability of the Borrower for payments in the nature of interest shall not
exceed the limits applicable to this Note, if any, imposed by the usury laws, if
any, of the United States of America or the State of California. If any payment
in the nature of interest made by the Borrower or received by the holder of this
Note is determined to be in excess of any limit applicable to this Note imposed
by such usury laws, then the amount of such excess shall constitute and be
considered a payment of principal, not interest, and such amount shall be
applied to reduce the principal sum so that the total liability of the Borrower
for payments in the nature of interest does not exceed the applicable limits, if
any, imposed by such usury laws. In the event and to the extent such excess
amount of interest exceeds the outstanding unpaid principal balance hereunder,
any such excess amount shall be immediately returned to Borrower by Lender.
No delay or omission on the part of the Lender hereof in exercising any
right hereunder shall operate as a waiver of such right or of any other right
under this Note.
Neither this Note nor any term hereof may be waived, amended, discharged,
modified, changed, or terminated orally, nor shall any waiver of any provision
hereof be effective except by an instrument in writing signed by Borrower and
the Lender thereof.
Whenever used herein, the words "Borrower" and "Lender" shall be deemed
to include their respective heirs, personal representatives, successors and
assigns.
2
<PAGE> 18
All notices to be given under this Note shall be deemed served upon
receipt by the addressee or, if mailed, upon the expiration of seventy-two
(72) hours after deposit in the United States Postal Service, certified mail,
postage prepaid, addressed to the address of Borrower or Lender as hereinafter
set forth:
Borrower's Address: 2801 Kelvin Avenue
Irvine, California 92715
Attention: Chief Executive Officer
Lender's Address: 1515 South Manchester Avenue
Anaheim, California 92802-2907
Attention: Chief Executive Officer
This Note may from time to time be extended or renewed, with or without
notice to Borrower or any guarantor hereon and any related right may be waived,
exchanged, surrendered or otherwise dealt with, all without affecting the
liability of Borrower or any guarantor hereon.
There are no oral agreements between the Lender and the Borrower
relating to this Note. If any provision of this Note is held to be invalid or
unenforceable, it shall not affect the validity and enforceability of the other
provisions of this Note. This Note has been executed and delivered in the State
of California and is to be governed by and construed according to the laws
thereof.
IN WITNESS WHEREOF, the Borrower has executed this Note as of the date
first hereinabove written.
ATL Products, Inc.
By:
----------------------------------
Name:
Title:
3
<PAGE> 1
EXHIBIT 10.3
SEPARATION AND DISTRIBUTION AGREEMENT
THIS AGREEMENT is made and entered into this 20th day of December, 1996, by
and between ODETICS, INC., a Delaware corporation ("Odetics"), and ATL
PRODUCTS, INC., a Delaware corporation ("ATL").
PRELIMINARY STATEMENT
Odetics is the sole stockholder of ATL.
Odetics, through ATL and its wholly owned subsidiary, ATL Products Ltd., a
United Kingdom corporation, is engaged in the manufacture and sale of automated
tape libraries, and related services (the "Business").
Odetics' Board of Directors has determined that Odetics will cause ATL to
make an initial public offering of up to 1,897,500 shares of its Class A Common
Stock (the "IPO"), and subsequent to the IPO and subject to certain conditions,
distribute to Odetics' shareholders all of the outstanding stock of ATL owned
by Odetics through a spinoff (the "Distribution"). The IPO and the
Distribution are together referred to herein as the "Separation" and will
result in the total and complete separation of the Business and ATL from
Odetics at the time of the Distribution (the "Separation Date"); provided,
however, that Odetics may continue to provide services to ATL pursuant to
services agreements after the Separation Date.
The parties hereto have determined that it is necessary and desirable to set
forth in this Agreement and in services agreements (the "Services Agreement"),
a Promissory Note (the "Note") and a Tax Allocation Agreement (the "Tax
Allocation Agreement") between ATL and Odetics (the Services Agreement and the
Tax Allocation Agreement are collectively referred to herein as the "Ancillary
Agreements"), the principal corporate transactions determined by Odetics and
ATL to be appropriate to effect the Separation and to set forth other
agreements and undertakings by and between Odetics and ATL that will govern
certain other matters between the date hereof and the Distribution and
following the Distribution.
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<PAGE> 2
Simultaneously with the execution of this Agreement, Odetics and ATL are
entering into the Ancillary Agreements.
NOW, THEREFORE, in consideration of the promises and the mutual
representations, warranties, covenants and agreements, and upon the terms and
subject to the conditions hereinafter set forth, the parties do hereby agree as
follows:
ARTICLE I.
THE TRANSFER
1.1 Transfer of Assets. On the terms and subject to the conditions set
forth in this Agreement, and the other agreements and instruments of conveyance
contemplated hereunder, simultaneously with the execution and delivery of this
Agreement, Odetics has heretofore transferred, assigned and conveyed to ATL all
of Odetics' right, title, and interest in and to all of the assets, tangible
and intangible, related to the Business (the "ATL Assets") for a purchase price
equal to the book value thereof, as calculated in accordance with generally
accepted accounting principles. The parties hereto believe that such purchase
price constitutes fair market value of the ATL Assets.
1.2 Payment of Purchase Price. The purchase price of the ATL Assets will
be included in the principal amount of a Promissory Note (the "Note") in the
form attached hereto as Exhibit A, which will be completed at the consummation
of the IPO, and executed and delivered in connection therewith, and such
purchase price shall be payable in accordance with the terms of the Note.
2
<PAGE> 3
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF ODETICS
Odetics represents and warrants to ATL as follows:
2.1 Power and Authority; Effect of Agreement. Odetics is a corporation
duly organized, validly existing and in good standing under the laws of
Delaware, has requisite corporate power and authority to execute, deliver and
perform this Agreement and to consummate the transactions contemplated hereby.
The execution, delivery and performance by it of this Agreement and the
consummation by it of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on its part. This Agreement has
been duly and validly executed and delivered by it and constitutes its legal,
valid and binding obligation enforceable against it in accordance with its
terms. Except to the extent that such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to creditors' rights generally. The execution, delivery and
performance by it of this Agreement and the consummation by it of the
transactions contemplated by the Transfer does not, and will not, with or
without the giving of notice or the lapse of time, or both: (i) violate any
provision of law, rule or regulation to which it is subject; (ii) violate any
order, judgment or decree applicable to it; (iii) conflict with, or result in a
breach or default under, its Certificate of Incorporation or its Bylaws; or
(iv) conflict with, or result in a breach or default under, any contract to
which it is a party; except, in each case, for violations, conflicts, breaches
or defaults which in the aggregate would not materially hinder or impair the
consummation of the transactions contemplated hereby or have a material adverse
effect on the Business.
2.2 Stock of Transferred Subsidiaries. Odetics is the owner, beneficially
and of record of all of the issued and outstanding stock of the assets referred
to in Section 1.1 hereof, free and clear of all liens, encumbrances, security
agreements, options, claims, charges and restrictions.
2.3 Government Consents. No consent, approval or authorization of, or
exemption from, or filing with any governmental or regulatory authority is
required in connection with the execution, delivery or performance by Odetics
of the terms of this Article II or the taking by it of any other action
required to effectuate the Transfer.
3
<PAGE> 4
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF ATL
ATL represents and warrants to Odetics as follows:
3.1 ATL's Power and Authority. ATL is a corporation duly organized
validly existing and in good standing under the laws of Delaware, and has all
requisite corporate power and authority to carry on the Business as it is now
being conducted and as proposed to be conducted.
3.2 Due Authorization, Execution and Delivery; Effect of Agreement. ATL
has all requisite corporate power and authority to execute, deliver and perform
this Agreement and to consummate the transactions contemplated hereby. The
execution, delivery and performance by ATL this Agreement and the consummation
by ATL of the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of ATL. This Agreement has been duly and
validly executed and delivered by ATL and constitutes the legal, valid and
binding obligation of ATL, enforceable against ATL in accordance with its
terms, except to the extent that such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to creditors' rights generally. The execution, delivery and
performance by ATL of this Agreement and the consummation by ATL of the
transactions contemplated by the Transfer does not, and will not, with or
without the giving of notice or the lapse of time, or both: (i) violate any
provision of law, rule or regulation to which ATL is subject; (ii) violate any
order, judgment or decree applicable to ATL; (iii) conflict with, or result in
a breach or default under, the Articles of Incorporation or Bylaws of ATL; or
(iv) conflict with, or result in a breach or default under, any contract to
which it is a party; except, in each case, for violations, conflicts, breaches
or defaults which in the aggregate would not materially hinder or impair the
consummation of the transactions contemplated hereby or have a material adverse
effect on the Business.
3.3 Consents. No consent, approval or authorization of, or exemption
from, or filing with, any governmental or regulatory authority or any other
third party is required in connection with the execution. delivery or
performance by ATL of this Agreement or the taking by of any other action
required to effectuate the Transfer.
4
<PAGE> 5
ARTICLE IV.
COVENANTS OF ODETICS
4.1 Books and Records; Personnel. For a period of six years after the
Separation Date (or such longer period as maybe required by any law or
regulation, any governmental agency, any ongoing litigation or class of
connection with any administrative proceeding):
(a) Odetics shall not dispose of or destroy any of the business
records and files of the Business retained by it or any of its subsidiaries (the
"Retained Records"). If Odetics wishes to dispose of or destroy such records
and files after that time, it shall use reasonable efforts to first give 30
days' prior written notice to ATL and ATL shall have the right, at its option
and expense, upon prior written notice to Odetics within such 30 day period, to
take possession of the Retained Records within 60 days after the date of ATL's
notice to Odetics.
(b) Odetics shall allow ATL and its representatives reasonable
access to all Retained Records during regular business hours and upon reasonable
notice. Odetics shall maintain the Retained Records in a manner and at locations
that reasonably facilitates retrieval and review by ATL. ATL shall have the
right, at its own expense, to make copies of any such records and files and
Odetics shall provide convenient duplication facilities for such purpose,
provided, however, that any such access or copying shall be had or done in such
manner so as not to unreasonably interfere with the normal conduct of Odetics'
business or operations; and
(c) Odetics shall make reasonably available to ATL, upon written
request and at ATL's expense: (i) personnel to assist in locating and obtaining
records and files maintained by it
5
<PAGE> 6
(including those created after the date hereof, to the extent necessary and
appropriate in connection with pending and future claims against ATL relating
to the Business) and (ii) any of its personnel whose assistance or
participation (including as a witness during depositions or at trial) is
reasonably required by ATL in anticipation of, or preparation for or during,
existing or future litigation or other matters in which ATL or any of its
affiliates is involved and which is related to the Business.
4.2 Supply Agreements. For a period of three years from the consummation
of the IPO, Odetics shall not unilaterally terminate or assign its guarantee
obligation with respect to any supply agreement pursuant to which it has
guaranteed the performance by ATL of ATL's obligations, unless such suppliers
have consented to the termination or assignment of such guarantee.
ARTICLE V.
COVENANTS OF ATL
5.1 Cooperation. ATL agrees to cooperate with Odetics, both before and
after the Separation Date, to enable both parties to implement the Separation,
including but not limited to performing the obligations undertaken the parties
hereunder. Such cooperation will include but not be limited to preparing and
submitting required financial reports after the Separation Date which may
relate to periods whether before or after the Separation Date and executing
such documents and doing such other acts and things as may be necessary to
carry out the intent of this Agreement as it relates to the Separation.
5.2 Books and Records; Personnel. For a period of six years after the
Separation Date (or such longer period as may be required by any law or
regulation, any governmental agency, any ongoing litigation or class of
litigation, or in connection with any administrative proceeding):
(a) ATL shall not dispose of or destroy of the business records
and files of the Business that are transferred to it or any of its subsidiaries
in carrying out the transactions
6
<PAGE> 7
contemplated hereby (the "Transferred Records"). If ATL wishes to dispose of
or destroy such records and files after that time, it shall use reasonable
efforts to first give 30 days' prior written notice to Odetics and Odetics
shall have the right at its option and expense, upon prior written notice to
ATL within such 30 day period, to take possession of the Transferred Records
within 60 days after the date of Odetics' notice to ATL;
(b) ATL shall allow Odetics and representatives reasonable access
to all Transferred Records during regular business hours and upon reasonable
notice. ATL shall maintain the Transferred Records in a manner and at locations
that reasonably facilitates retrieval and review by Odetics. Odetics shall have
the right at its own expense, to make copies of any such records and files and
ATL shall provide convenient duplication facilities for such purposes provided,
however, that any such access or copying shall be had or done in such a manner
so as not to unreasonably interfere with the normal conduct of ATL's business or
operations; and
(c) ATL shall make reasonably available to Odetics upon written
request and at Odetics' expense: (1) ATL's personnel to assist in locating and
obtaining records and files maintained by it (including those created after the
date hereof, to the extent necessary and appropriate in connection with pending
and future claims against Odetics relating to the Business), and (ii) any of
its personnel whose assistance or participation (including as a witness during
depositions or at trial) is reasonably required by Odetics in anticipation of,
or preparation for or during, existing or future litigation or other matters in
which Odetics or any of its affiliates is involved.
ARTICLE VI.
THE IPO AND ACTIONS PENDING THE IPO
6.1 Transactions Prior to the IPO.
(a) Subject to the conditions specified in Section 6.3 hereof, Odetics
and ATL shall use their reasonable best efforts to consummate the IPO. Such
actions shall include, but shall not necessarily be limited to, those specified
in this Section 6.1.
7
<PAGE> 8
(b) ATL shall file the IPO Registration Statement, and such
amendments or supplements thereto, as may be necessary in order to cause the
same to become and remain effective as required by law or by the Underwriters,
including, but not limited to, filing such amendments to the IPO Registration
Statement as may be required by the Underwriting Agreement, the Commission or
federal, state or foreign securities laws. Odetics and ATL shall also cooperate
in preparing, filing with the Commission and causing to become effective a
registration statement registering the ATL Common Stock under the Exchange Act,
and any registration statements or amendments thereof which are required to
reflect the establishment of, or amendments to, any employee benefit and other
plans necessary or appropriate in connection with the IPO, the Separation, the
Distribution or the other transactions contemplated by this Agreement and the
Ancillary Agreements.
(c) ATL shall enter into the Underwriting Agreement, in form and
substance reasonably satisfactory to ATL and shall comply with its obligations
thereunder.
(d) Odetics and ATL shall consult with each other and the Underwriters
regarding the timing, pricing and other material matters with respect to the
IPO.
(e) ATL shall use its reasonable best efforts to take all such action
as may be necessary or appropriate under state securities and blue sky laws of
the United States (and any comparable laws under any foreign jurisdictions) in
connection with the IPO.
(f) ATL shall prepare, file and use reasonable best efforts to seek to
make effective, an application for listing of the ATL Common Stock issued in
the IPO on the Nasdaq National Market, subject to official notice of issuance.
(g) ATL shall participate in the preparation of materials and
presentations as the Underwriters shall deem necessary or desirable.
8
<PAGE> 9
(h) ATL shall pay all third party costs, fees and expenses relating to
the IPO, all of the reimbursable expenses of the Underwriters pursuant to the
Underwriting Agreement, all of the costs of producing, printing, mailing and
otherwise distributing the Prospectus, as well as the Underwriters' discount as
provided in the Underwriting Agreement.
6.2 Proceeds of the IPO. The IPO will be a primary offering of ATL Common
Stock and the net proceeds of the IPO will be retained by ATL, subject to its
obligation to pay certain amounts pursuant to the Note.
6.3 Conditions Precedent to Consummation of the IPO. As soon as
practicable after the date of this Agreement, the parties hereto shall use
their reasonable best efforts to satisfy the following conditions to the
consummation of the IPO. The obligations of the parties to consummate the IPO
shall be conditioned on the satisfaction, or waiver by Odetics, of the
following conditions:
(a) The IPO Registration Statement shall have been declared effective
by the Commission, and there shall be no stop-order in effect with respect
thereto.
(b) The actions and filings with regard to state securities and blue
sky laws of the United States (and any comparable laws under any foreign
jurisdictions) described in Section 6.1 shall have been taken and, where
applicable, have become effective or been accepted.
(c) The ATL Class A Common Stock to be issued in the IPO shall have
been accepted for listing on the Nasdaq National Market, on official notice of
issuance.
(d) ATL shall have entered into the Underwriting Agreement and all
conditions to the obligations of ATL and the Underwriters shall have been
satisfied or waived.
(e) Odetics shall be satisfied in its sole discretion that it will
own at least 80.0% of the outstanding ATL voting stock following the IPO, and
all other conditions to permit the Distribution to qualify as a tax free
distribution to Odetics'
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stockholders shall, to the extent applicable as of the time of the IPO, be
satisfied and there shall be no event or condition that is likely to cause any
of such conditions not to be satisfied as of the time of the Distribution or
thereafter.
(f) No order, injunction or decree issued by any court or agency of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Separation or the IPO or any of the other transactions
contemplated by this Agreement or any Ancillary Agreement shall be in effect.
(g) Such other actions as the parties hereto may, based upon the
advice of counsel, reasonably request to be taken prior to the Separation and
the IPO in order to assure the successful completion of the Separation and the
IPO and the other transactions contemplated by this Agreement shall have been
taken.
(h) This Agreement shall not have been terminated.
(i) A pricing committee of Odetics directors designated by the Board
of Directors of Odetics shall have determined that the terms of the IPO are
acceptable to Odetics.
ARTICLE VII.
THE DISTRIBUTION
7.1 The Distribution.
(a) Subject to the conditions specified in Section 7.3 hereof, on or
prior to the Distribution Date, Odetics will deliver to the Agent for the
benefit of holders of record of Odetics Common Stock on the Record Date, a
single stock certificate, endorsed by Odetics in blank, representing all of the
outstanding shares of ATL Common Stock then owned by Odetics, and shall cause
the transfer agent for the shares of Odetics Common Stock to instruct the Agent
to distribute on the Distribution Date the appropriate number of such shares of
ATL Common Stock to each such holder or designated transferee or transferees of
such holder.
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(b) Subject to Section 7.4, each holder of Odetics Common Stock on the
Record Date (or such holder's designated transferee or transferees) will be
entitled to receive in the Distribution a number of shares of ATL Common Stock
equal to the number of shares of Odetics Common Stock held by such holder on
the Record Date multiplied by a fraction the numerator of which is the number
of shares of ATL Common Stock beneficially owned by Odetics on the Record Date
and the denominator of which is the number of shares of Odetics Common Stock
outstanding on the Record Date.
(c) ATL and Odetics, as the case may be, will provide to the Agent all
share certificates and any information required in order to complete the
Distribution on the basis specified above.
7.2 Actions Prior to the Distribution.
(a) Odetics and ATL shall prepare and mail, prior to the Distribution
Date, to the holders of Odetics Common Stock, such information concerning ATL,
its business, operations and management, the Distribution and such other
matters as Odetics shall reasonably determine and as may be required by law.
Odetics and ATL will prepare, and ATL will, to the extent required under
applicable law, file with the Commission any such documentation and any
requisite no action letters which Odetics determines are necessary or desirable
to effectuate the Distribution and Odetics and ATL shall each use its
reasonable best efforts to obtain all necessary approvals from the Commission
with respect thereto as soon as practicable.
(b) Odetics and ATL shall take all such action as may be necessary or
appropriate under the securities or blue sky laws of the United States (and any
comparable laws under any foreign jurisdiction) in connection with the
Distribution.
(c) Odetics and ATL shall take all reasonable steps necessary and
appropriate to cause the conditions set forth in Section 7.3(d) (subject to
Sections 7.3(d)) to be satisfied and to effect the Distribution on the
Distribution Date.
(d) ATL shall prepare and file, and shall use its reasonable best
efforts to have approved, an application for the listing of the ATL Common
Stock to be distributed in the Distribution on the Nasdaq National Market,
subject to official notice of distribution.
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7.3 Conditions to Distribution. The Odetics Board currently intends to
effect the Distribution by December 31, 1997. Subject to any restrictions
contained in the Underwriting Agreement, the Odetics Board shall have the sole
discretion to determine the date of consummation of the Distribution at any
time after the Closing Date and on or prior to December 31, 1997. Odetics shall
be obligated to consummate the Distribution no later than December 31, 1997,
subject to the satisfaction, or waiver by the Odetics Board in its sole
discretion, of the conditions set forth below. In the event that any such
condition shall not have been satisfied or waived on or before December 31,
1997, Odetics shall consummate the Distribution as promptly as practicable
following the satisfaction or waiver of all such conditions.
(a) a private letter ruling from the Internal Revenue Service shall
have been obtained, and shall continue in effect, to the effect that, among
other things, the Distribution will qualify as a tax free distribution for
federal income tax purposes under Section 355 of the Code and will not result in
the recognition of any gain to Odetics or Odetics' shareholders, and such ruling
shall be in form and substance satisfactory to Odetics in its sole discretion;
(b) any material governmental approvals and consents necessary to
consummate the Distribution shall have been obtained and be in full force and
effect;
(c) no order, injunction or decree issued by any court or agency of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Distribution shall be in effect and no other event outside
the control of Odetics shall have occurred or failed to occur that prevents the
consummation of the Distribution; and
(d) no other events or developments shall have occurred subsequent to
the date hereof that, in the judgment of the Board of Directors of Odetics,
would result in the Distribution having a material adverse effect on Odetics
or on the shareholders of Odetics.
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The foregoing conditions are for the sole benefit of Odetics and shall not give
rise to or create any duty on the part of Odetics or the Odetics Board of
Directors to waive or not waive any such condition.
7.4 Fractional Shares. As soon as practicable after the Distribution
Date, Odetics shall direct the Agent to determine the number of whole shares
and fractional shares of ATL Common Stock allocable to each holder of record or
beneficial owner of Odetics Common Stock as of the Record Date, to aggregate
all such fractional shares and sell the whole shares obtained thereby at the
direction of Odetics either to Odetics, in open market transactions or
otherwise, in each case at then prevailing trading prices, and to cause to be
distributed to each such holder or for the benefit of each such beneficial
owner, in lieu of any fractional share, such holder's or owner's ratable share
of the proceeds of such sale, after making appropriate deductions of any amount
required to be withheld for federal income tax purposes and after deducting an
amount equal to all brokerage charges, commissions and transfer taxes
attributed to such sale. Odetics and the Agent shall use their reasonable best
efforts to aggregate the shares of Odetics Common Stock that may be held by any
beneficial owner thereof through more than one account in determining the
fractional share allocable to such beneficial owner.
7.5 The ATL Board of Directors. Odetics and ATL shall each take all
actions which may be required to elect or otherwise appoint as directors of
ATL, on or prior to the Distribution Date, persons to be designated by a
nominating committee of ATL's Board of Directors as additional or substitute
members of the Board of Directors of ATL on the Distribution Date.
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ARTICLE VIII.
MUTUAL RELEASES; INDEMNIFICATION
8.1 Release of Pre-closing Claims.
(a) Except as provided in Section 8.1(c), effective as of the and its
Closing Date (the "Closing Date"), ATL does hereby, for itself and each of its
affiliates, successors and assigns, and all persons who at any time prior to
the Closing Date have been shareholders, directors, officers, agents or
employees of any member of ATL (in each case, in their respective capacities as
such), remise, release and forever discharge each of Odetics and its
affiliates, successors and assigns, and all persons who at any time prior to
the Closing Date have been shareholders, directors, officers, agents or
employees of Odetics (in each case, in their respective capacities as such),
and their respective heirs, executors, administrators, successors and assigns,
from any and all liabilities whatsoever, whether at law or in equity (including
any right of contribution), whether arising under any contract or agreement, by
operation of law or otherwise, existing or arising from any acts or events
occurring or failing to occur or alleged to have occurred or to have failed to
occur or any conditions existing or alleged to have existed on or before the
Closing Date, including in connection with the transactions and all other
activities to implement any of the Separation, the IPO and the Distribution.
(b) Except as provided in Section 8.1(c), effective as of the Closing
Date, Odetics does hereby, for itself and its affiliates, successors and
assigns, and all persons who at any time prior to the Closing Date have been
shareholders, directors, officers, agents or employees of Odetics (in each
case, in their respective capacities as such), remise, release and forever
discharge ATL, and its affiliates, successors and assigns, and all persons who
at any time prior to the Closing Date have been shareholders, directors,
officers, agents or employees of ATL (in each case, in their respective
capacities as such), and their respective heirs, executors, administrators,
successors and assigns, from any and all Liabilities whatsoever, whether at law
or in equity (including any right of contribution), whether arising under any
contract or agreement, by operation of law or otherwise, existing or arising
from any acts or events occurring or failing to occur or alleged to have
occurred or to have failed to occur or any conditions existing or alleged to
have existed on or before the Closing Date, including in connection with the
transactions and all other activities to implement any of the Separation, the
IPO and the Distribution.
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<PAGE> 15
(c) Nothing contained in Section 8.1(a) or (b) shall impair any right of
any person to enforce this Agreement, any Ancillary Agreement or any
agreements, arrangements, commitments or understandings that are specified
herein or in the Schedules and Exhibits hereto not to terminate as of the
Closing Date, in each case in accordance with its terms. Nothing contained in
Section 8.1(a) or (b) shall release any person from:
(i) any liability provided in or resulting from any agreement
between Odetics and ATL that is specified herein or the Schedules and Exhibits
hereto as not to terminate as of the Closing Date, or any other liability
specified as not to terminate as of the Closing Date;
(ii) any liability, contingent or otherwise, assumed, transferred,
assigned or allocated to such person;
(iii) any liability that the parties may have with respect to
indemnification or contribution pursuant to this Agreement for claims brought
against the parties by third Persons, which liability shall be governed by this
Article VIII and, if applicable, the appropriate provisions of the Ancillary
Agreements.
(d) ATL shall not make, any claim or demand, or commence any action
asserting any claim or demand, including any claim of contribution or any
indemnification, against Odetics, or any other person released pursuant to
Section 8.1(a), with respect to any liabilities released pursuant to Section
8.1(a). Odetics shall not make any claim or demand, or commence any action
asserting any claim or demand, including any claim of contribution or any
indemnification, against ATL or any other person released pursuant to Section
8.1(b), with respect to any labilities released pursuant to Section 8.1(b).
(e) It is the intent of each of Odetics and ATL by virtue of the
provisions of this Section 8.1 to provide for a full and complete release and
discharge of all liabilities existing or arising from all acts and events
occurring or failing to occur or alleged to have occurred or to have failed to
occur and all conditions existing or alleged to have existed on or before the
Closing Date, between or among ATL and its affiliates on the one hand, and
Odetics and its affiliates on the other hand (including
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<PAGE> 16
any contractual agreements or arrangements existing or alleged to exist between
or among any such persons on or before the Closing Date), except as expressly
set forth in Section 8.1(c). At any time, at the request of any other party,
each party shall execute and deliver releases reflecting the provisions hereof.
8.2 Indemnification by ATL. Except as provided in Section 8.4, ATL shall
indemnify, defend and hold harmless Odetics, and each of its directors,
officers and employees, and each of the heirs, executors, successors and
assigns of any of the foregoing (collectively, the "Odetics Indemnitees"), from
and against any and all liabilities of the Odetics Indemnitees relating to,
arising out of or resulting from any of the following items:
(a) the failure of ATL or any other person to pay, perform or
otherwise promptly discharge any ATL Liabilities or ATL Contract in accordance
with their respective terms, whether prior to or after the Closing Date or the
date hereof;
(b) the ATL Business, any ATL Liability, any ATL Contract;
(c) any breach by ATL or its affiliates of this Agreement or any of
the Ancillary Agreements; and
(d) any untrue statement or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, with
respect to all information contained in any IPO Registration Statement or
Prospectus.
8.3 Indemnification by Odetics. Odetics shall indemnify, defend and hold
harmless ATL, and each of its directors, officers and employees, and each of
the heirs, executors, successors and assigns of any of the foregoing
(collectively, the "ATL Indemnitees"), from and against any and all liabilities
of the ATL Indemnitees relating to, arising out of or resulting from any of the
following items:
(a) the failure of Odetics or any other person to pay, perform or
otherwise promptly discharge any liabilities of Odetics other than the ATL
Liabilities whether prior to or after the Closing Date or the date hereof;
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<PAGE> 17
(b) the Odetics Business or any liability of Odetics other than the
ATL Liabilities; and
(c) any breach by Odetics or any of its affiliates of this Agreement
or any of the Ancillary Agreements.
8.4 Indemnification Obligations Net of Insurance Proceeds and Other
Amounts.
(a) The parties intend that any liability subject to indemnification
or reimbursement pursuant to this Article VIII will be net of insurance proceeds
that actually reduce the amount of the liability. Accordingly, the amount
which any party (an "Indemnifying Party") is required to pay to any person
entitled to indemnification hereunder (an "Indemnitee") will be reduced by any
insurance proceeds theretofore actually recovered by or on behalf of the
Indemnitee in reduction of the related liability. If an Indemnitee receives a
payment (an "Indemnity Payment") required by this Agreement from an
Indemnifying Party in respect of any liability and subsequently receives
insurance proceeds, then the Indemnitee will pay to the Indemnifying Party an
amount equal to the excess of the Indemnity Payment received over the amount of
the Indemnity Payment that would have been due if the insurance proceeds
recovery had been received, realized or recovered before the Indemnity Payment
was made.
(b) An insurer who would otherwise be obligated to pay any claim shall
not be relieved of the responsibility with respect thereto or, solely by virtue
of the indemnification provisions hereof, have any subrogation rights with
respect thereto, it being expressly understood and agreed that no insurer or
any other third party shall be entitled to a benefit such insurer or other
third party would not be entitled to receive in the absence of the
indemnification provisions by virtue of the indemnification provisions hereof.
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8.5 Procedures for Indemnification of Third Party Claims.
(a) If an Indemnitee shall receive notice or otherwise learn of the
assertion by any person other than the parties hereto (a "Third Party Claim")
with respect to which an Indemnifying Party may be obligated to provide
indemnification to such Indemnitee pursuant to Section 8.2 or 8.3, or any other
Section of this Agreement or any Ancillary Agreement, such Indemnitee shall
give such Indemnifying Party written notice thereof within 20 days after
becoming aware of such Third Party Claim. Any such notice shall describe the
Third Party Claim in reasonable detail. Notwithstanding the foregoing, the
failure of any Indemnitee or other Person to give notice as provided in this
Section 8.5(a) shall not relieve the related Indemnifying Party of its
obligations under this Article III, except to the extent that such Indemnifying
Party is actually prejudiced by such failure to give notice.
(b) An Indemnifying Party may elect to defend (and, unless the
Indemnifying Party has specified any reservations or exceptions, to seek to
settle or compromise), at such Indemnifying Party's own expense and by such
Indemnifying Party's own counsel, any Third Party Claim. Within 30 days after
the receipt of notice from an Indemnitee in accordance with Section 8.5(a), the
Indemnifying Party shall notify the Indemnitee of its election whether the
Indemnifying Party will assume responsibility for defending such Third Party
Claim, which election shall specify any reservations or exceptions. After
notice from an Indemnifying Party to an Indemnitee of its election to assume
the defense of a Third Party Claim, such Indemnitee shall have the right to
employ separate counsel and to participate in (but not control) the defense,
compromise, or settlement thereof, but the fees and expenses of such counsel
shall be the expense of such Indemnitee except as set forth in the next
sentence. In the event that the Indemnifying Party has elected to assume the
defense of the Third Party Claim but has specified, and continues to assert,
any reservations or exceptions in such notice, then, in any such case, the
reasonable fees and expenses of one separate counsel for all Indemnitees shall
be borne by the Indemnifying Party.
(c) If an Indemnifying Party elects not to assume responsibility for
defending a Third Party Claim, or fails to notify an Indemnitee of its election
as provided in Section 8.5(b), such Indemnitee may defend such Third Party
Claim at the cost and expense of the Indemnifying Party.
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(d) Unless the Indemnifying Party has failed to assume the defense
of the Third Party Claim in accordance with the terms of this Agreement, no
Indemnitee may settle or compromise any Third Party Claim without the consent
of the Indemnifying Party.
(e) No Indemnifying Party shall consent to entry of any judgment or
enter into any settlement of the Third Party Claim without the consent of the
Indemnitee if the effect thereof is to permit any injunction, declaratory
judgment, other order or other nonmonetary relief to be entered, directly or
indirectly, against any Indemnitee.
(f) The provisions of this Section 8.5 shall not apply to Taxes (which
are covered by the Tax Allocation Agreement).
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ARTICLE IX.
INTERIM OPERATIONS AND CERTAIN OTHER MATTERS
9.1 Insurance Matters.
(a) ATL agrees that it will reimburse Odetics for its proportionate
share of premiums paid or accrued, from the date hereof until the Distribution
Date, in respect of Insurance Policies under which ATL will continue to have
coverage following the date hereof. Odetics and ATL agree to cooperate in good
faith to provide for an orderly transition of insurance coverage from the date
hereof through the Distribution Date and for the treatment of any Insurance
Policies that will remain in effect following the Closing Date on a mutually
agreeable basis. In no event shall Odetics, or any Odetics Indemnitee have
liability or obligation whatsoever to ATL in the event that any Insurance Policy
or other contract or policy of insurance shall be terminated or otherwise cease
to be in effect for any reason, shall be unavailable or inadequate to cover any
liability of ATL for any reason whatsoever or shall not be renewed or extended
beyond the current expiration date.
(b)(i) Except as otherwise provided in any Ancillary Agreement, the
parties intend by this Agreement that ATL and its affiliates be
successor-in-interest to all rights that any may have as of the Closing Date as
a subsidiary or affiliate of Odetics prior to the Closing Date under any policy
of insurance issued to Odetics by any insurance carrier or under any agreements
related to such policies executed and delivered prior to the Closing Date,
including any rights ATL and its affiliates may have, as an insured or
additional named insured, subsidiary or affiliate to avail itself of any such
policy of insurance or any such agreements related to such policies as in
effect prior to the Closing Date. At the request of ATL, Odetics shall take
all reasonable steps, including the execution and delivery of any instruments,
to effect the foregoing; provided however that Odetics shall not be required to
pay any amounts, waive any rights or incur any liabilities in connection
therewith.
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(ii) Except as otherwise contemplated by any Ancillary Agreement,
after the Closing Date, neither of Odetics or ATL shall, without the consent of
the other, provide any such insurance carrier with a release, or amend, modify
or waive any rights under any such policy or agreement, if such release,
amendment, modification or waiver would adversely affect any rights or potential
rights of the other hereunder; provided, however, that the foregoing shall not
(A) preclude either from presenting any claim or from exhausting any policy
limit, (B) require either to pay any premium or other amount or to incur any
liability, or (C) require either to renew, extend or continue any policy in
force. Each of ATL and Odetics will share such information as is reasonably
necessary in order to permit the other to manage and conduct its insurance
matters in an orderly fashion.
(c) This Agreement shall not be considered as an attempted assignment
of any policy of insurance or as a contract of insurance and shall not be
construed to waive any right or remedy of either Odetics or ATL in respect of
any insurance policy or any other contract or policy of insurance.
(d) ATL does hereby, for itself and its affiliates, agree that
Odetics or any Odetics Indemnitee shall have any liability whatsoever as a
result of the insurance policies and practices of Odetics and its affiliates as
in effect at any time prior to the Closing Date, including as a result of the
level or scope of any such insurance, the creditworthiness of any insurance
carrier, the terms and conditions of any policy, the adequacy or timeliness of
any notice to any insurance carrier with respect to any claim or potential claim
or otherwise.
ARTICLE X.
MISCELLANEOUS
10.1 Counterparts; Entire Agreement; Corporate Power.
(a) This Agreement and each Ancillary Agreement may be executed in
one or more counterparts, all of which shall be considered one and the same
agreement, and shall become effective when one or more counterparts have been
signed by each of the parties and delivered to the other party.
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(b) This Agreement, and the Ancillary Agreements and the Exhibits,
Schedules and Appendices hereto and thereto contain the entire agreement
between the parties with respect to the subject matter hereof, supersede all
previous agreements, negotiations, discussions, writings, understandings,
commitments and conversations with respect to such subject matter and there are
no agreements or understandings between the parties other than those set forth
or referred to herein or therein.
10.2 Governing Law. This Agreement and, unless expressly provided therein,
each Ancillary Agreement, shall be governed by and construed and interpreted in
accordance with the laws of the State of California.
10.3 Assignability.
(a) Except as set forth in any Ancillary Agreement, this Agreement and
each Ancillary Agreement shall be binding upon and inure to the benefit of the
parties hereto and thereto, respectively, and their respective successors and
assigns; provided, however, that no party hereto or thereto may assign its
respective rights or delegate its respective obligations under this Agreement
or any Ancillary Agreement without the express prior written consent of the
other parties hereto or thereto.
10.4 Third Party Beneficiaries. Except for the indemnification rights under
this Agreement of any Odetics Indemnitee or ATL Indemnitee in their respective
capacities as such, (a) the provisions of this Agreement and each Ancillary
Agreement are solely for the benefit of the parties and are not intended to
confer upon any person except the parties any rights or remedies hereunder, and
(b) there are no third party beneficiaries of this Agreement or any Ancillary
Agreement and neither this Agreement nor any Ancillary Agreement shall provide
any third person with any remedy, claim, liability, reimbursement, claim of
action or other right in excess of those existing without reference to this
Agreement or any Ancillary Agreement. No party hereto shall have any right,
remedy or claim with respect to any provision of this Agreement or any
Ancillary Agreement to the extent such
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provision relates solely to the other two parties hereto or the members of such
other two parties' respective Groups. No party shall be required to deliver any
notice under this Agreement or under any Ancillary Agreement to any other party
with respect to any matter in which such other party has no right, remedy or
claim.
10.5 Notices. All notices or other communications under this Agreement or
any Ancillary Agreement shall be in writing and shall be deemed to be duly
given when (a) delivered in person or (b) deposited in the United States mail
or private express mail, postage prepaid, addressed as follows:
If to Odetics, to: Odetics, Inc.
1515 South Manchester Avenue
Anaheim, California 92802-2907
If to ATL, to: ATL Products, Inc.
1515 South Manchester Avenue
Anaheim, California 92802-2907
Any party may, by notice to the other party, change the address to which such
notices are to be given.
10.6 Severability. If any provision of this Agreement or any Ancillary
Agreement or the application thereof to any Person or circumstance is
determined by a court of competent jurisdiction to be invalid, void or
unenforceable, the remaining provisions hereof or thereof, or the application
of such provision to Persons or circumstances or in jurisdictions other than
those as to which it has been held invalid or unenforceable, shall remain in
full force and effect and shall in no way be affected, impaired or invalidated
thereby, so long as the economic or legal substance of the transactions
contemplated hereby or thereby, as the case may be, is not affected in any
manner adverse to any party. Upon such determination, the parties shall
negotiate in good faith in an effort to agree upon such a suitable and
equitable provision to effect the original intent of the parties.
10.7 Force Majeure. No party shall be deemed in default of this Agreement
or any Ancillary Agreement to the extent that any delay or failure in the
performance of its obligations under this Agreement or any Ancillary Agreement
results from any cause beyond
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its reasonable control and without its fault or negligence, such as acts of
God, acts of civil or military authority, embargoes, epidemics, war, riots,
insurrections, fires, explosions, earthquakes, floods, unusually severe weather
conditions, labor problems or unavailability of parts, or, in the case of
computer systems, any failure in electrical or air conditioning equipment. In
the event of any such excused delay, the time for performance shall be extended
for a period equal to the time lost by reason of the delay.
10.8 Publicity. Prior to the Distribution, each of ATL and Odetics shall
consult with the other prior to issuing any press releases or otherwise making
public statements with respect to the IPO, the Distribution or any of the other
transactions contemplated hereby and prior to making any filings with any
governmental authority with respect thereto.
10.9 Headings. The article, section and paragraph headings contained in
this Agreement and in the Ancillary Agreements are for reference purposes only
and shall not affect in any way the meaning or interpretation of this Agreement
or any Ancillary Agreement.
10.10 Survival of Covenants. Except as expressly set forth in any
Ancillary Agreement, the covenants, representations and warranties contained in
this Agreement and each Ancillary Agreement, and liability for the breach of any
obligations contained herein, shall survive each of the Separation, the IPO and
the Distribution and shall remain in full force and effect regardless of
whether Odetics shall consummate, delay, modify or abandon the NCR
Distribution.
10.11 Waivers of Default. Waiver by any party of any default by the
other party of any provision of this Agreement or any Ancillary Agreement shall
not be deemed a waiver by the waiving party of any subsequent or other default,
nor shall it prejudice the rights of the other party.
10.12 Specific Performance. In the event of any actual or threatened
default in, or breach of, any of the terms, conditions and provisions of this
Agreement or any Ancillary Agreement, the party or parties who are or are to be
thereby
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aggrieved shall have the right to specific performance and injunctive or other
equitable relief of its rights under this Agreement or such Ancillary
Agreement, in addition to any and all other rights and remedies at law or in
equity, and all such rights and remedies shall be cumulative. The parties agree
that the remedies at law for any breach or threatened breach, including
monetary damages, are inadequate compensation for any loss and that any defense
in any action for specific performance that a remedy at law would be adequate
is waived. Any requirements for the securing or posting of any bond with such
remedy are waived.
10.13 Amendments.
(a) No provisions of this Agreement or any Ancillary Agreement shall
be deemed waived, amended, supplemented or modified by any party, unless such
waiver, amendment, supplement or modification is in writing and signed by the
authorized representative of the party against whom it is sought to enforce
such waiver, amendment, supplement or modification. Without limiting the
foregoing, the parties agree that any waiver, amendment, supplement or
modification of this Agreement or any Ancillary Agreement that solely relates
to and affects only two of the three parties hereto shall not require the
consent of the third party hereto.
(b) Without limiting the foregoing, the parties anticipate that,
prior to the Closing Date, some or all of the Schedules to this Agreement may
be amended or supplemented and, in such event, such amended or supplemented
Schedules shall be attached hereto in lieu of the original Schedules.
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IN WITNESS WHEREOF, the parties have caused this Separation
and Distribution Agreement to be executed by their duly authorized
representatives.
ODETICS, INC.
/s/ JOEL SLUTZKY
-------------------------------------
Joel Slutzky
Chief Executive Officer
ATL PRODUCTS, INC.
/s/ KEVIN C. DALY
-------------------------------------
Kevin C. Daly
Chief Executive Officer
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EXHIBIT 10.4
TAX ALLOCATION AGREEMENT
AGREEMENT dated ______________ by and among Odetics, Inc. (Parent FEIN:
95-2588496) and each of its undersigned subsidiaries.
WITNESSETH
WHEREAS, the parties hereto are members of an affiliated group (Affiliated
Group) as defined in Section 1504(a); and
WHEREAS, such Affiliated Group has filed U.S. consolidated income tax returns
for its tax years ended March 31, 1993 through March 31, 1995 and is required
to file consolidated tax returns for subsequent years; and
WHEREAS, it is the intent and desire of the parties hereto that a formalized
agreement be entered into to document the method established for allocating the
consolidated tax liability of the Affiliated Group among its members, for
reimbursing the Parent (or the subsidiary making such payment for the Parent)
of such tax liability, and for allocating and paying any refund arising from a
carryback of losses or tax credits from subsequent tax years.
Now, THEREFORE, in consideration of the mutual covenants and promises contained
herein, the parties hereto agree as follows:
1. A U.S. consolidated income tax return is filed by the Parent. Each
subsidiary shall execute and file such consent, elections, and other
documents that may be required or appropriate for the proper filing of
such returns.
2. The Parent and each Subsidiary agree that the consolidated tax
liability for each year, determined in accordance with Regulation
Section 1.1502-2, shall be apportioned among them in accordance with
Internal Revenue Code Section 1552(a)(1). For purposes of this
agreement, the consolidated tax liability shall include any liability
for alternative minimum tax. In applying that Internal Revenue Code
and regulations, the tax liability for a given tax year shall be
apportioned only among the members of the Affiliated Group with
separate company taxable income for that tax year. The tax liability
will be allocated to these profit members in the same ratio as each
member's separate company taxable income bears to the total of the
separate company taxable incomes of all profit members. No tax
liability will be allocated to a member of the affiliated group with a
current year taxable loss. Further, no benefit will be provided to a
loss member for utilization of its net operating loss by another
member. For purposes of allocating alternative minimum tax,
alternative minimum taxable income amounts shall be substituted for
taxable income amounts in the this calculation.
3. Payment of the consolidated tax liability for a taxable period shall
include the payment of estimated tax installments due to such taxable
period, each subsidiary shall pay to the Parent its share of each
payment within _____ days of receiving notice of such payment from the
<PAGE> 2
Odetics, Inc. & Subsidiaries Page 2
Tax Allocation Agreement December 1, 1996
Parent, but in no event later than the due date for each such payment.
Any amounts paid by a subsidiary on account of a separate return or
separate estimated tax payments that are credited against the
consolidated tax liability of the Affiliated Group shall be included
in determining the payments due from such subsidiary. Any overpayment
of estimated tax should be refunded to the subsidiary.
4. If part or all of an unused tax credit is allocated to a member of the
Affiliated Group pursuant to Regulation Section 1.1502-79, and is
carried back or forward to a year in which such member filed a
separate return or a consolidated return with another affiliated
group, any refund or reduction in tax liability arising from the
carryback or carryover shall be retained by such member.
Notwithstanding the above, the Parent shall determine whether an
election shall be made not to carry back part or all of a consolidated
net operating loss for any tax year in accordance with Internal
Revenue Code Section 172(b)(3).
5. If the consolidated tax liability is adjusted for any taxable period,
whether by means of an amended return, net operating loss carryback,
claim for refund, or after a tax audit by the Internal Revenue
Service, the liability of each member shall be recomputed to give
effect to such adjustments, and in the case of a refund, the Parent or
designated subsidiary shall make payment to each member for its share
of the refund, determined in the same manner as in paragraph 2 above,
within ___ days after the refund is received by the Parent, and in the
case of an increase in tax liability, each member shall pay to the
Parent its allocable share of such increased tax liability within ___
days after receiving notice of such liability from the parent.
6. If during a consolidated return period, the Parent or any subsidiary
acquires or organizes another corporation that is required to be
included in the consolidated return, then such corporation shall join
in and be bound by this agreement.
7. This agreement shall apply to the tax year ending _________________,
and all subsequent taxable periods unless the Parent and the
subsidiaries agree to terminate the agreement and the Affiliated Group
properly elects to change its method for allocating tax liability
pursuant to the Internal Revenue Code and Treasury Regulations.
Notwithstanding such termination, this agreement shall continue in
effect with respect to any payment or refunds due for all taxable
periods prior to termination.
8. This agreement shall be binding upon and inure to the benefit of any
successor, whether by statutory merger, acquisition of assets, or
otherwise, to any of the parties hereto, to the same extent as if the
successor had been an original party to the agreement.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed by their duly authorized representatives on _______________.
<PAGE> 3
Odetics, Inc. & Subsidiaries Page 3
Tax Allocation Agreement December 1, 1996
ODETICS, INC. (FEIN #: 95-2588496)
- --------------------------------------- ------------------------
Officer Title
ATL PRODUCTS, INC. (FEIN #: 95-3824281)
- --------------------------------------- ------------------------
Officer Title
<PAGE> 1
EXHIBIT 10.5
SERVICES AGREEMENT
This SERVICES AGREEMENT is made and entered into as of this 20th day of
December 1996, by and between ODETICS, INC., a Delaware corporation ("Odetics")
and ATL PRODUCTS, INC., a Delaware corporation ("ATL").
R E C I T A L S
WHEREAS, Odetics and ATL have entered into a Separation and Distribution
Agreement pursuant to which ATL anticipates that in 1997 it will issue
additional shares of its authorized but unissued Class A Common Stock in a
registered and underwritten initial public offering of 20% or less of its
outstanding shares and subsequently, Odetics will distribute to its
shareholders pursuant to a tax free spinoff under Internal Revenue Code Section
355 of the Class A Common Stock of ATL which it owns (the "Distribution"); and
WHEREAS, ATL desires Odetics to perform certain business, information and
facilities services on ATL's behalf following the Distribution;
NOW, THEREFORE, the parties hereto do hereby agree as follows:
1. Business Services. During the term of this Agreement, Odetics shall
provide to ATL the services set forth in Exhibit A attached hereto (the
"Services") in substantially the same manner and to the same extent as
currently and heretofore provided.
2. Performance of Services.
2.1 Services to be provided by Odetics may, at Odetics's sole
discretion, be provided, in whole or in part, by affiliates of Odetics.
Odetics shall not be obligated to acquire new or additional asserts, or
hire new or additional employees, to perform the Services. In addition,
Odetics may contract with one or more third parties for the performance
of all or any part of the Services provided (i) the costs to ATL
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<PAGE> 2
for the services to be provided by the third party do not exceed the
amounts that would have been charged by Odetics, (ii) the level of service
provided by the third party is at least substantially equivalent to that
provided by Odetics hereunder, and (iii) such third party is reasonably
acceptable to ATL. It is currently contemplated that the Services will
generally continue to be provided by the organization that is providing
such Services as of the date hereof. ATL agrees that all third parties
currently providing any Services are acceptable third parties to provide
Services.
2.2 The Services to be provided by Odetics shall be provided to
ATL as appropriate to reflect the organizational and operational
structure of ATL; provided, however, that Odetics shall not be required
to provide any Services to the extent that the performance of such
Services becomes more expensive for Odetics as a result of an
organizational or operations change by ATL.
2.3 ATL shall provide to Odetics on a timely basis any and all
information which is necessary for Odetics to provide the Services. ATL
shall be solely responsible for the timely delivery of such information,
and the accuracy and completeness thereof. ATL shall have no right to
obtain any confidential or proprietary information of Odetics, and any
such information so obtained by ATL shall be deemed to be confidential
and treated in accordance with the provisions of Section 7 hereof.
3. Limitation of Services.
3.1 Odetics shall not be required to provide a level of service
which is higher than that provided currently, at the date of this
Agreement.
3.2 Odetics shall not be required to perform any information system
services to the extent such services would result in the breach of any
software license or other applicable contract. If Odetics believes it is
unable to provide any information systems services pursuant to the
foregoing, Odetics shall promptly notify ATL. If requested by ATL,
Odetics shall use reasonable efforts to obtain the rights necessary to
provide such information system services, including obtaining any
appropriate consents from third parties. ATL shall be responsible for
all additional costs and expenses incurred by Odetics in order to allow
Odetics to provide such information system services.
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<PAGE> 3
3.3 Odetics shall not be required to provide any Services to the
extent the performance of such Services becomes impractical as a result of
a cause or causes outside the reasonable control of Odetics or to the
extent the performance of such Services would require Odetics to violate
any applicable laws, rules or regulations.
3.4 ODETICS MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR
IMPLIED, AND ODETICS SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE
SERVICES TO BE PROVIDED HEREUNDER.
4. Fees.
4.1 ATL shall pay to Odetics, as fees for the Services performed by
Odetics pursuant to this Agreement, the amounts set forth in Exhibit A,
which amounts are intended to represent the fair market value of such
services. Such fees shall be adjusted throughout the term of this
Agreement, so that they will reflect fair market value at all times. In
addition, ATL shall reimburse Odetics for all direct third party costs
incurred by Odetics in connection with providing the Services, provided
that such third party costs have been approved in advance by ATL.
4.2 Odetics shall submit to ATL, on a monthly basis, Odetics's
invoice for Services performed under this Agreement in the preceding month.
Each invoice shall be payable net thirty (30) days after the date of the
invoice; however, in the event that ATL, in good faith, questions any
invoiced item, payment of that item shall be made only after the
satisfactory resolution of those questions. ATL shall pay a service charge
of __% per month for all overdue amounts.
5. Term.
5.1 Unless terminated earlier as provided in this Section, this
Agreement shall terminate as of a date eighteen (18) months after the date
of this Agreement.
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5.2 ATL may terminate any of the Services, in whole or in part, upon
30 days written notice to Odetics.
5.3 This Agreement may be terminated at any time upon the mutual
consent of the parties.
5.4 Either party may terminate this Agreement if the other party is
in material default under this Agreement and fails to correct such default
within 30 days after receiving written notice of such default.
5.5 The parties acknowledge that the purpose of this Agreement is to
provide the Services on an interim basis to permit ATL to obtain
alternative sources for the Services. ATL shall use its best efforts to
obtain alternative sources for the Services as soon as practicable.
6. Indemnification.
6.1 ATL shall indemnify and hold harmless Odetics, its affiliates,
and their officers, directors, employees, and agents from and against all
claims, liabilities, obligations, suits, causes of action, or expenses
(including reasonable attorneys fees) (collectively "Claims") claimed to
have resulted, directly or indirectly, from in connection with the
performance of Services by Odetics, provided, however, that ATL shall not
be required to indemnify or hold harmless any indemnitee to the extent the
Claims are caused by the gross negligence or willful misconduct of such
indemnitee.
6.2 An indemnitee shall provide written notice to ATL of any Claims
with respect to which it seeks indemnification, and ATL shall assume the
defense of such Claims with counsel reasonably satisfactory to the
indemnitee. If such defense is assumed by ATL with counsel so selected,
ATL will not be subject to any liability for any settlement of such Claims
made by an indemnified party without ATL's consent (such consent to not be
unreasonably withheld or delayed). No indemnified party will be subject to
any liability for any settlement of such Claims made by ATL without such
party's consent (which consent is not to be unreasonably withheld), and
such settlement shall include an unconditional release of all indemnitees
from all liability on such Claims. If an indemnified party desires to
retain separate counsel, such
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<PAGE> 5
indemnified party shall have the right to do so, but ATL will not be
obligated to pay the fees and expenses of such separate counsel. The
parties hereto agree to cooperate fully with each other in connection with
the defense, negotiation or settlement of any legal proceeding, claim or
demand and to engage in no action that would result in or increase
liability on the part of another party.
6.3 The provisions of this Section 6 shall survive termination of the
Agreement.
7. Confidentiality.
7.1 In the course of performance of this Agreement, either party
("Receiving Party") may acquire information on the other party ("Disclosing
Party") deems confidential, including trade secrets and unpublished
technical information and data to which the Disclosing Party (or companies
affiliated with the Disclosing Party) has proprietary rights. Confidential
information shall also include information of a third party which the
Disclosing Party is under an obligation to maintain in confidence. All
such information is referred to hereinafter as "Disclosed Information."
7.2 The Receiving Party shall retain Disclosed Information in strict
confidence and shall not communicate it to others without the Disclosing
Party's prior written agreement. Notwithstanding the foregoing, Odetics
shall be allowed to disclose Disclosed Information of ATL to third parties
as necessary to perform the Services, provided such third parties have
undertaken confidentiality obligations substantially similar to those set
forth in this Section 7.
7.3 Nothing in this Agreement shall prevent the communication to
others of any Disclosed Information which the Receiving Party can show was
known to it or its representatives prior to its receipt hereunder, was
lawfully received by the Receiving party and its representatives other than
directly or indirectly from the Disclosing Party or became public knowledge
through no fault of the Receiving Party.
7.4 The provisions of this Section 7 shall survive termination of
this Agreement for a period of three years.
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<PAGE> 6
8. Miscellaneous.
8.1 Notices. All notices required or permitted to be given under
this Agreement shall be in writing and shall be sent by facsimile
transmission or mailed by registered or certified mail addressed to the
party to whom such notice is required or permitted to be given. All
notices shall be deemed to have been given when transmitted if given by
facsimile and confirmation of receipt is received or, if mailed, 48 hours
after mailed as evidenced by the postmark at the point of mailing.
All notices to Odetics shall be addressed as follows:
Odetics, Inc.
1515 South Manchester Avenue
Anaheim, California 92802-2907
All notices to ATL shall be addressed as follows:
ATL Products, Inc.
1515 South Manchester Avenue
Anaheim, California 92802-2907
Either party may, be written notice to the other, designate a new
address to which notices to the party giving the notice shall thereafter be
mailed.
8.2 Force Majeure. Odetics shall not be liable for any delay or
failure of performance to the extent such delay or failure is caused by
circumstances beyond its reasonable control and that by the exercise of due
diligence it is unable to prevent, provided that the party claiming excuse
use its best efforts to overcome the same.
8.3 Limitation of Liability. In no event shall Odetics be liable to
ATL for indirect, consequential, incidental or special damages, including
but not limited to lost profits, arising from or relating to any breach of
this Agreement, regardless of any notice of such damages. Nothing in this
Section is intended to limit or restrict the indemnification rights or
obligations of either party.
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8.4 Entirety of Agreement. This Agreement sets forth the entire
agreement and understanding of the parties relating to the subject matter
contained herein and merges all prior discussions between them, and neither
party shall be bound by any representation other than as expressly stated
in this Agreement, or by a written amendment to this Agreement signed by
authorized representatives of both parties.
8.5 Waiver. The failure of either party in any one or more instances
to insist upon strict performance of any of the terms and conditions of
this Agreement shall not be construed as a waiver or relinquishment, to any
extent, of the right to assert or rely upon any such terms or conditions on
any future occasion.
8.6 Disclaimer of Agency. This Agreement shall not constitute either
party the legal representative or agent of the other, nor shall either
party have the right or authority to assume, create, or incur any
third-party liability or obligation of any kind, express or implied,
against or in the name of or on behalf of the other party except as
expressly set forth in this Agreement. The relationship of Odetics and ATL
shall be solely that of contracting parties and no partnership, joint
venture or other arrangement of any nature shall be deemed to be created
hereby.
8.7 Severability. In the event any term of this Agreement is or
becomes or is declared to be invalid or void by any court of competent
jurisdiction, such term or terms shall be null and void and shall be deemed
deleted from this Agreement, and all the remaining terms of the Agreement
shall remain in full force and effect.
8.8 Governing Law. The validity, performance and construction of
this Agreement shall be governed by the laws of California.
8.9 Assignment. Except as provided in Section 2, neither party shall
delegate duties of performance or assign, in whole or in part, rights or
obligations under this Agreement without the prior written consent of the
other party, and any attempted delegation or assignment without such
written consent shall be of no force or effect. Subject to the
restrictions contained in the preceding sentence, this Agreement shall be
binding upon the successors and assigns of both parties.
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<PAGE> 8
8.10 Amendment. This Agreement shall be amended as mutually agreed by
Odetics and ATL in order to comply with any requirements imposed by the
Internal Revenue Service in order to issue a ruling pursuant to Section 355
of the Internal Revenue Service Code of 1986, as amended.
This Agreement is executed by the parties as of the date indicated
above.
ATL PRODUCTS, INC. ODETICS, INC.
By: /s/ KEVIN C. DALY By: /s/ JOEL SLUTZKY
------------------------------- -----------------------------
Kevin C. Daly Joel Slutzky
Title: Chief Executive Officer Title: Chief Executive Officer
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EXHIBIT A
Description of Services Calculation of Fees
----------------------- -------------------
<PAGE> 1
EXHIBIT 10.6
________________________________________________________________________________
VAR AGREEMENT
BETWEEN
ATL
P R O D U C T S
AN ODETICS COMPANY
AND
------------------
FOR
AUTOMATED TAPE LIBRARIES
NOVEMBER 15, 1996
(C) ATL Products, Inc. 1996
This is an unpublished work that contains confidential and proprietary
information that may be protected under the Copyright Laws. The existence of
the Copyright Notice is not to be construed as an admission or presumption that
publication has occurred. Unauthorized copying of this document is strictly
prohibited.
All rights reserved.
This document is subject to change by ATL without notice until executed by both
Parties.
o DLT and Compact Tape are registered trademarks of Quantum Corporation.
________________________________________________________________________________
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
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<S> <C>
1. Relationship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Period of Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3. Forecasts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
4. Sales and Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
5. Purchase Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
6. Shipment, Risk of Loss and Title . . . . . . . . . . . . . . . . . . . . . . . . . . 2
7. Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
8. Limited Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
9. Limitation of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
10. Confidential Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
11. Intellectual Property Rights and Indemnity . . . . . . . . . . . . . . . . . . . . . 3
12. Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
13. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
14. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
15. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
16. Rights and Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
17. Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
18. Disputes/Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
19. Exporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
20. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
21. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Exhibit A -- Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Exhibit B -- Geographic Locations and Storage Management Software . . . . . . . . . . . . . 8
</TABLE>
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This Agreement including all Exhibits is entered on the last date of execution
(the "Agreement Date") by and between ATL Products, Inc. a corporation
organized under the laws of the State of California with its principal place of
business at 1515 South Manchester Avenue, Anaheim, California 92802
(hereinafter known as "ATL") and ______________________ a corporation organized
under the laws of the State of ________________ __ with its principal place of
business at _____________________________________________________ (herein after
known as "VAR").
The following Exhibits are attached and incorporated into this Agreement by
this reference as if fully set forth herein. Exhibits may be added or revised
from time to time by mutual agreement. Any Exhibit that is added or revised
shall be signed by both ATL and VAR and shall supersede the previous version.
<TABLE>
<CAPTION>
EXHIBIT TITLE
------- -----
<S> <C>
A Products
B Geographic Locations and Storage Management Software
</TABLE>
1. RELATIONSHIP
ATL develops and manufactures Automated Tape Libraries as listed in
Exhibit A, (hereinafter known as "Products") and desires to offer said
Products for sale to VAR. VAR has recognized capabilities in adding
value to these Products and re-selling them to End Users and desires
to have the right to purchase such Products from ATL.
In consideration of this, and subject to all the terms and conditions
of this Agreement, ATL agrees to use reasonable efforts to sell to VAR
on a non-exclusive basis and VAR agrees to purchase from ATL the
Products listed in Exhibit A.
Nothing in this Agreement shall be construed as limiting in any manner
ATL's marketing or distribution activities or its appointment of other
VARs for the Product.
The provisions of this Section are intended to generally explain the
reasons for why ATL and VAR have entered into this Agreement and
constitute a portion of the contractual obligations of this Agreement.
2. PERIOD OF PERFORMANCE
The period during which VAR may issue Purchase Orders for Product
under this Agreement (Purchase Period) shall be one (1) year, from the
Agreement date. The Purchase Period shall be automatically extended
(Extended Purchase Period) for one (1) year periods unless notified in
writing by either Party no less than sixty (60) days prior to the end
of the current Purchase Period. During this period ATL reserves the
right to change, modify or discontinue any Product at any time.
3. FORECASTS
VAR shall use reasonable commercial efforts to provide ATL no later
than the last day of each calendar month a revolving three (3) month
non binding forecast by Product Model Number and End User name so that
ATL shall have an understanding of VAR's anticipated monthly
requirements.
VAR'S NON BINDING FORECAST IS FOR INFORMATION ONLY AND DOES NOT CREATE
ANY LIABILITY BETWEEN THE PARTIES NOR DOES IT GUARANTEE ATL WILL
MANUFACTURE AND SHIP PRODUCT IN ACCORDANCE WITH IT. ATL ONLY
OBLIGATION TO MANUFACTURE AND SHIP PRODUCT WILL BE IN ACCORDANCE WITH
THE TERMS OF THIS AGREEMENT AND PURSUANT TO A PURCHASE ORDER ISSUED BY
VAR AND ACCEPTED BY ATL.
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4. SALES AND MARKETING
VAR shall use reasonable commercial efforts to successfully market
(including without limitation, inclusion of the Products in VAR's
catalogs and other promotional materials), sell and support (including
training, installation and other support) the Products on a continuing
basis and to comply with good business practices and all laws and
regulations relevant to this Agreement. In VAR's resell efforts, VAR
shall use the company names used by ATL for the Products (but shall
not represent or imply that it is ATL or a part of ATL) provided that
all advertisements and promotional materials shall be subject to prior
written approval of ATL, which approval shall not be unreasonably
withheld, and provided further that no other right to use any name or
designation is granted by this Agreement.
5. PURCHASE ORDERS
VAR shall order Product by issuing facsimile, or telephonic orders or
Purchase Orders. VAR shall issue confirming written Purchase Orders
to the address first appearing herein, unless otherwise notified,
within five (5) days after issuing such facsimile or telephonic
orders. Each Purchase Order shall specify items such as item
description, quantity, delivery schedule, destinations, and total
price of the Purchase Order. In addition, each purchase order shall
include the End User's name, address, contact, phone number, who is
installing the unit and who is performing the maintenance.
ATL shall have five (5) business days after receipt to accept or
decline each Purchase Order. No purchase order shall be deemed
accepted by ATL until ATL gives written notice to VAR of acceptance.
All of the terms and conditions of this Agreement and its Exhibits
shall be deemed incorporated into each Purchase Order as if fully set
forth therein. If any term of this Agreement conflicts with any term
of an issued Purchase Order, this Agreement shall take precedence.
6. SHIPMENT, RISK OF LOSS AND TITLE
All Product is sold and shipped Ex Works (in accordance with Incoterms
1990). ATL shall make all arrangements for shipment with the carrier
stated on VAR's purchase order. VAR shall pay all shipping and
transportation charges directly to the carrier. In the event such
charges have been prepaid by ATL, VAR shall reimburse ATL pursuant to
ATL's invoice for such charges. ATL reserves the right to select the
means and method of shipment in the event VAR does not inform ATL of
the arrangements for shipment within twenty four hours after ATL has
informed VAR that the Product is ready for shipment.
7. PAYMENT
All payments required by this Agreement are stated and shall be made
in United States dollars. Payments shall be delivered to ATL net
thirty (30) calendar days after shipment and sent to ATL at the return
address printed on the ATL's invoice, and shall be deemed made only
upon receipt by ATL at that address.
8. LIMITED WARRANTY
ATL provides a Limited Warranty to the End User as provided with the
Product.
9. LIMITATION OF LIABILITY
NOTWITHSTANDING ANYTHING ELSE IN THIS AGREEMENT OR OTHERWISE, ATL
MAKES NO OTHER REPRESENTATIONS, PROMISES, GUARANTEES OR WARRANTIES,
EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, INCLUDING BUT NOT LIMITED
TO, ANY IMPLIED WARRANTIES OR MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE, AND ATL EXPRESSLY DISCLAIMS ALL WARRANTIES NOT
EXPRESSLY STATED HEREIN. UNDER NO CIRCUMSTANCES SHALL ATL BE LIABLE
TO VAR OR TO ANY END USER, FOR ANY INJURIES, DAMAGE TO OR REPLACEMENT
OF PRODUCT OR PROPERTY, COSTS FOR RECOVERING, REPROGRAMMING, OR
REPRODUCING ANY PROGRAM OR DATA USED WITH THE PRODUCT, OR ANY SPECIAL,
INDIRECT, INCIDENTAL, ECONOMIC OR CONSEQUENTIAL DAMAGES OR CLAIMS FOR
LOSS OF BUSINESS OR LOSS OF PROFITS WHATSOEVER, EVEN IF ATL WAS
ADVISED OF THE POSSIBILITY OF SUCH LOSS OR DAMAGE.
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10. CONFIDENTIAL INFORMATION
Both ATL and VAR shall maintain as confidential and shall not disclose
to any person outside its employ, nor use for purposes other than
performance of this Agreement, any specifications, drawings,
blueprints, data, business information, or other Confidential
Information which either Party learns by virtue of this Agreement,
except as required by law, and after Written Notice to the other
Party. Upon termination of this Agreement, both Parties shall
promptly return to the other all confidential material and all copies.
THIS AGREEMENT (INCLUDING PRICE LISTS AND OTHER EXHIBITS, AND ALL
TRANSACTIONS HEREUNDER) ARE UNDERSTOOD TO BE CONFIDENTIAL INFORMATION
NOT TO BE DISCLOSED OR USED BY EITHER PARTY EXCEPT AS PROVIDED HEREIN.
11. INTELLECTUAL PROPERTY RIGHTS AND INDEMNITY
ATL shall own the entire right, title and interest in and to all
intellectual property rights relating to the design of the Product
that are or have been designed and developed exclusively by ATL.
ATL shall indemnify, defend and hold harmless VAR from and against any
and all costs, expenses and damages including without limitation
reasonable attorneys fees, with respect to any claim against VAR
alleging that Product in the form sold by ATL, or any part thereof,
infringes any United States patent, copyright, trademark, mask work,
or violates a trade secret of a third Party. ATL's obligation
pursuant to this Section are conditional on and subject to VAR's
compliance with each of the following conditions: (i) VAR shall give
Written Notice to ATL promptly in writing of such a claim and (ii) ATL
shall have the authority to assume sole defense thereof through its
own counsel and to compromise or settle any suits so far as this may
be done without prejudice to the right of the VAR to continue to use
the Product, so purchased. If an injunction against VAR's or End
User's use, sale, lease, license, or other distribution of the Product
or any part thereof results from such a claim (or if VAR reasonably
believes such an injunction is likely), ATL may in order of
precedence: (1) procure the right to continue the use of the same for
the VAR; or (2) replace the same with non-infringing product, or (3)
modify said Product so as to be non-infringing; or, if none of the
foregoing (1), (2), or (3) are deemed reasonably feasible, (4) take
back the infringing Product and refund the purchase price less a
deprecation deduction equal to twenty percent (20%) of the purchase
price for each year since the date of shipment.
This section states the entire liability of ATL for Intellectual
Property infringement. The indemnification provisions of this Section
shall not apply to any infringement arising out of the use (i) in
systems if the cause of such infringement to be the system itself or
components of the system not supplied by ATL; or (ii) for purposes not
contemplated by this Agreement. Indirect and consequential damages
that may occur as a result of any such infringement, or claim of
infringement, are expressly negated, and the liability of ATL shall be
limited to its agreements herein.
VAR shall indemnify, defend and hold harmless ATL from and against any
and all costs, expenses and damages, including without limitation
reasonable attorneys' fees, with respect to any claim alleging that
VAR's end product which incorporates ATL's Product (but not ATL's
Product alone) infringes any patent, trademark, copyright, mask work
or violates any trade secret of a third party, provided that ATL
promptly notifies the VAR in writing and provides information and
reasonable assistance (at VARs expense), and that VAR is permitted to
direct the defense of the suit or proceeding.
12. FORCE MAJEURE
Neither Party shall be liable for failure to perform any of its
obligation under this Agreement during any period in which such Party
cannot perform due to fire, food, earthquake, or other natural
disaster, war, embargo, riot, or the intervention of any government
authority, provided that the Party so delayed immediately notifies the
other Party of such delay.
3
<PAGE> 6
13. TERMINATION
Either Party may terminate this Agreement for cause if the other Party
fails to comply with any material covenant or provision of this
Agreement, and does not cure such failure within thirty (30) days
after Written Notice is given to such Party.
Either Party may terminate this Agreement at any time without cause
provided that ninety (90) days prior Written Notice is given to the
other Party and all Product scheduled to be shipped shall be accepted
and paid for by the VAR.
In the event this Agreement is terminated, all unpaid invoices shall
become due and payable immediately upon termination and ATL may elect
to continue or terminate any pending order.
14. NOTICES
Any notice given under this Agreement shall be written. Written
Notice shall be sent by certified mail, postage prepaid, return
receipt requested, or by any other overnight delivery service that
delivers to the notice destination, and provides proof of delivery to
the sender. Any facsimile notice must be followed within three (3)
days by Written Notice. All Written Notices shall be effective when
first received by VAR at its address first set forth above, and by ATL
at the following addresses:
<TABLE>
<CAPTION>
ATL PRODUCTS, INC. VAR
------------------ ---
<S> <C>
1515 South Manchester Avenue
Anaheim, California 92802
Attention: Richard Speyer
</TABLE>
15. ASSIGNMENT
This Agreement shall be binding and inure to the benefit of the
Parties hereto and their respective successors and assigns. VAR shall
not assign, subcontract, transfer, encumber or hypothecate directly or
indirectly this Agreement or any rights herein to the benefit of any
third party without the express written consent of ATL which may be
withheld in its sole discretion. The rights of this Agreement shall
not inure to the benefit of any third party.
16. RIGHTS AND REMEDIES
All rights and remedies conferred by this Agreement, by any other
instrument, or by law are cumulative and may be exercised singly or
concurrently. If any provision of this Agreement is held invalid by
any law or regulation of any government or by any court, such
invalidity shall not effect the enforceability of any other provisions
hereof.
17. APPLICABLE LAW
This Agreement shall be governed by and construed under the laws of
the State of California.
18. DISPUTES/ARBITRATION
The Parties shall attempt in good faith to resolve any controversy or
claim arising out of or relating to this Agreement promptly by
negotiations between executives of the Parties.
If a controversy or claim should arise one Party shall give Written
Notice to the other Party of such controversy or claim (the "Invoking
Party's"), the Parties shall use their best efforts to arrange
personal meetings or telephone conferences as needed, at mutually
convenient times and places, between negotiators for the Parties at
the following successive management levels, each of which shall have a
period of allotted time as specified below in which to attempt to
resolve the dispute:
<TABLE>
<CAPTION>
LEVEL ATL VAR ALLOTTED TIME
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
FIRST Contract Manager Contract Manager 10 Business Days
- ---------------------------------------------------------------------------------------------------------
SECOND Division VP Division VP 10 Business Days
- ---------------------------------------------------------------------------------------------------------
THIRD Corporate Officer Corporate Officer 30 Days
</TABLE>
4
<PAGE> 7
The allotted time for the first level negotiator shall begin on the
effective date of the Invoking Party's Notice.
If a resolution is not achieved by negotiators at any given management
level at the end of their allotted time, then the allotted time for
the negotiators at the next management level, if any, shall begin
immediately.
If resolution is not achieved by negotiators at the final management
level within the allotted time then the Parties agree the matter shall
be submitted to binding arbitration conducted in the County of Orange,
California by the Judicial Arbitration and Mediation Service, Inc.
Arbitration shall be conducted by and in accordance with the rules of
the American Arbitration Association ("AAA"). There shall be three
arbitrators, the VAR shall select one, ATL shall select one and one
shall be selected by mutual agreement of the VAR and ATL.
VAR and ATL agree to be bound by the decisions of the arbitrators,
which shall be final, shall not be appealed, and shall allow for no
trial de novo on the same issues. The arbitrator's decision shall be
rendered within thirty (30) days following submission of the matter at
issue, but the failure to comply with this provision shall in no way
invalidate any decision or award as may be rendered more than thirty
(30) days after submission. Upon the rendering of the decision or
award, the prevailing party shall be entitled to reasonable costs and
attorneys' fees. Judgment upon any award may be entered in any court
having jurisdiction or application may be made to such court for
judicial acceptance of the award and an order of enforcement. By
agreeing to arbitration, neither VAR or ATL is waiving any of the
benefits of the statute of limitations or any equitable defense it may
have.
19. EXPORTING
ATL and VAR shall comply with all applicable laws and regulations of
the united States and any other country involved with the Product
transaction concerning export, import and reexport of goods. If VARs'
Purchase Order specifies export after passage of title, ATL shall
provide VAR with all the documentation reasonably necessary to enable
VAR to obtain licenses, if required, for exporting the Products.
Fulfillment of any Purchase Order accepted by ATL, for shipment to a
destination outside the United States, may be dependent upon the grant
of appropriate licenses, permits and similar items required for
shipments of Products from the country of export. VAR shall be
obligated to take delivery of such Products, in the United States,
even if the licenses, permits or other items required for export are
not furnished to the VAR at the time the Product is ready to ship.
In the event of a shipment to other than VAR's USA address, VAR, at
its own expense, shall furnish VAR's freight forwarder with detailed
documentation and instructions and all necessary export licenses,
customs declarations and certificates in properly executed form
required for successful shipment of the Products from the United
States and entry into foreign territories.
20. SURVIVAL
The provisions of this Agreement including without limitation
"Warranty," "Limitation of Liability," "Confidential Information,"
"Intellectual Property Rights and Indemnity," "Force Majeure,"
"Assignment," "Rights and Remedies," "Applicable Law,"
"Disputes/Arbitration," "Exporting," and "General," shall survive
termination or expiration of this Agreement.
21. GENERAL
A) This Agreement is the complete and entire understanding between the
Parties on this subject matter and supersedes all prior agreements,
proposals, representations, statements, or understandings whether
written or oral on this subject between them. The provisions of this
Agreement may be amended or waived only by a writing executed by the
authorized representatives of the Parties hereto.
B) In the event that either Party to this Agreement shall, on any
occasion, fail to perform any provision of this Agreement, and the
other Party does not enforce that provision, the failure to enforce
shall not prevent enforcement of the provision on any other occasion.
5
<PAGE> 8
C) Each Party, including its servants, agents, and employees, is an
independent contractor and not an agent or employee of the other.
Without limiting the generality of the foregoing, neither Party is
authorized to represent or make any commitments on behalf of the
other, and both Parties expressly disclaim any liability therefore.
D) The headings of the sections in this Agreement are included for
convenience only and are not to be used in construing or interpreting
this Agreement.
E) The Product purchased by VAR from ATL are manufactured for
standard commercial use and are not intended to be sold for use in
critical safety systems, nuclear facilities or for use in life support
appliances, devices or systems.
F) ATL reserves the right to fulfill the requirements of any purchase
order placed pursuant to this Agreement and invoice for such orders
through an affiliate company of ATL.
G) In the event of any dispute, litigation or arbitration between the
Parties with respect to this Agreement, the prevailing Party shall be
entitled to recover its reasonable attorneys' fees and costs in
addition to any other relief to which it is found entitled.
IN WITNESS WHEREOF, the authorized representatives of the Parties represent
that they have read this Agreement, understand it and agree to be bound by it
without exception by executing it below:
ATL PRODUCTS, INC. VAR
------------------ ---
Signature
Printed Name
Title
Date
6
<PAGE> 9
EXHIBIT A -- PRODUCTS
MODEL NUMBER DESCRIPTION
- ------------ -----------
o ATL2640 DLT 4000 FAMILY LIBRARIES (BASE UNITS)
o ATL2640 DLT 4000 FAMILY LIBRARIES (EXPANSION UNITS)
o ATL2640 DLT 7000 FAMILY LIBRARIES (BASE UNITS)
o ATL2640 DLT 7000 FAMILY LIBRARIES (EXPANSION UNITS)
o ATL7100 DLT 4000 FAMILY LIBRARIES
o ATL7100 DLT 7000 FAMILY LIBRARIES
o ATL520 DLT 4000 FAMILY LIBRARIES
o ATL520 DLT 7000 FAMILY LIBRARIES
LEADTIME
o DELIVERY LEADTIME OF PRODUCT PURCHASED UNDER THIS AGREEMENT IS
APPROXIMATELY THIRTY (30) TO SIXTY (60) DAYS.
7
<PAGE> 10
EXHIBIT B -- GEOGRAPHIC LOCATIONS AND STORAGE MANAGEMENT SOFTWARE
PRODUCT MARKETING AND SALES
SALES -- VAR hereby represents, warrants and agrees that:
A. PRODUCT PURCHASED BY VAR PURSUANT TO THIS AGREEMENT SHALL ONLY
BE RESOLD TO AN END USER.
B. VAR SHALL NOT EXPORT ANY PRODUCT.
C. VAR SHALL NOT RE-MARKET OR SELL PRODUCT WITHOUT ADDING ATL
APPROVED STORAGE MANAGEMENT SOFTWARE UNLESS (1) THE END USER ALREADY
HAS SUCH SOFTWARE FROM AN EXISTING SYSTEM OR (2) THE SOFTWARE
MANUFACTURER SELLS THE SOFTWARE DIRECTLY TO THE END USER.
D. VAR SHALL PROVIDE PRE SALE SUPPORT, INSTALLATION AND POST SALE
SERVICE OR ASSURE THAT THESE FUNCTIONS ARE ACCOMPLISHED.
E. VAR IS AUTHORIZED TO SELL PRODUCTS WITH THE FOLLOWING STORAGE
MANAGEMENT SOFTWARE IN THE FOLLOWING GEOGRAPHY.
TERRITORY
STORAGE MANAGEMENT SOFTWARE
8
<PAGE> 1
EXHIBIT 10.7
International VAR Agreement
Between
ATL
Products
An Odetics Company
and
----------------------------
for
Automated Tape Libraries
November 15, 1996
(C) ATL Products, Inc. 1996
This is an unpublished work that contains confidential and proprietary
information that may be protected under the Copyright Laws. The existence of
the Copyright Notice is not to be construed as an admission or presumption that
publication has occurred. Unauthorized copying of this document is strictly
prohibited.
All rights reserved.
This document is subject to change by ATL without notice until executed by both
parties.
o DLT and Compact Tape are registered trademarks of Quantum Corporation.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Relationship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Period of Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3. Forecasts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4. Sales and Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
5. Purchase Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
6. Shipment, Risk of Loss and Title . . . . . . . . . . . . . . . . . . . . . . . . . 3
7. Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
8. Limited Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
9. Limitation of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
10. Confidential Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
11. Intellectual Property Rights and Indemnity . . . . . . . . . . . . . . . . . . . . 4
12. Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
13. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
14. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
15. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
16. Rights and Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
17. Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
18. Disputes/Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
19. Exporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
20. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
21. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
</TABLE>
i
<PAGE> 3
This Agreement including all Exhibits is entered on the last
date of execution (the "Agreement Date") by and between ATL Products, Inc. a
corporation organized under the laws of the State of California with its
principal place of business at 1515 South Manchester Avenue, Anaheim,
California 92802 (hereinafter known as "ATL") and ________________ whose
registered office is _____________________________ (herein after known as
"VAR").
The following Exhibits are attached and incorporated into this
Agreement by this reference as if fully set forth herein. Exhibits may be
added or revised from time to time by mutual agreement. Any Exhibit that is
added or revised shall be signed by both ATL and VAR and shall supersede the
previous version.
<TABLE>
<CAPTION>
EXHIBIT TITLE
------- -----
<S> <C>
A Products
B Geographic Locations and Storage Management Software
C Affiliated VAR Sales
</TABLE>
1. RELATIONSHIP
ATL develops and manufactures Automated Tape Libraries as listed in Exhibit A,
(hereinafter known as "Products") and desires to offer said Products for sale
to VAR. VAR has recognized capabilities in adding value to these Products and
re-selling them to End Users or ATL Authorized Affiliated VARs and desires to
have the right to purchase such Products from ATL.
In consideration of this, and subject to all the terms and conditions of this
Agreement, ATL agrees to use reasonable efforts to sell to VAR on a
non-exclusive basis and VAR agrees to purchase from ATL the Products listed in
Exhibit A.
Nothing in this Agreement shall be construed as limiting in any manner ATL's
marketing or distribution activities or its appointment of other VAR's for the
Product.
The provisions of this Section are intended to generally explain the reasons
for why ATL and VAR have entered into this Agreement and constitute a portion
of the contractual obligations of this Agreement.
2. PERIOD OF PERFORMANCE
The period during which VAR may issue Purchase Orders for Product under this
Agreement (Purchase Period) shall be one (1) year, from the Agreement date.
The Purchase Period shall be automatically extended (Extended Purchase Period)
for one (1) year periods unless notified in writing by either Party no less
than sixty (60) days prior to the end of the current Purchase Period. During
this period ATL reserves the right to change, modify or discontinue any Product
at any time.
1
<PAGE> 4
3. FORECASTS
VAR shall use reasonable commercial efforts to provide ATL no later than the
last day of each calendar month a revolving three (3) month non binding
forecast by Product Model Number and End User or Affiliated VAR name so that
ATL shall have an understanding of VAR's anticipated monthly requirements.
VAR'S NON BINDING FORECAST IS FOR INFORMATION ONLY AND DOES NOT CREATE ANY
LIABILITY BETWEEN THE PARTIES NOR DOES IT GUARANTEE ATL WILL MANUFACTURE AND
SHIP PRODUCT IN ACCORDANCE WITH IT. ATL'S ONLY OBLIGATION TO MANUFACTURE AND
SHIP PRODUCT WILL BE IN ACCORDANCE WITH THE TERMS OF THIS AGREEMENT AND
PURSUANT TO A PURCHASE ORDER ISSUED BY VAR AND ACCEPTED BY ATL.
4. SALES AND MARKETING
VAR shall use reasonable commercial efforts to successfully market (including
without limitation, inclusion of the Products in VAR's catalogs and other
promotional materials), sell and support (including training, installation and
other support) the Products on a continuing basis and to comply with good
business practices and all laws and regulations relevant to this Agreement. In
VAR's resell efforts, VAR shall use the company names used by ATL for the
Products (but shall not represent or imply that it is ATL or a part of ATL)
provided that all advertisements and promotional materials shall be subject to
prior written approval of ATL, which approval shall not be unreasonably
withheld, and provided further that no other right to use any name or
designation is granted by this Agreement.
5. PURCHASE ORDERS
VAR shall order Product by issuing facsimile, or telephonic orders or Purchase
Orders. VAR shall issue confirming written Purchase Orders to the address
first appearing herein, unless otherwise notified, within five (5) days after
issuing such facsimile or telephonics orders. Each Purchase Order shall
specify items such as item description, quantity, delivery schedule,
destinations, and total price of the Purchase Order. In addition, each
purchase order shall include the End User's name, address, contact, phone
number, who is installing the unit and who is performing the maintenance.
ATL shall have five (5) business days after receipt to accept or decline each
Purchase Order. No purchase order shall be deemed accepted by ATL until ATL
gives written notice to VAR of acceptance.
All of the terms and conditions of this Agreement and its Exhibits shall be
deemed incorporated into each Purchase Order as if fully set forth therein. If
any term of this Agreement conflicts with any term of an issued Purchase Order,
this Agreement shall take precedence.
2
<PAGE> 5
6. SHIPMENT, RISK OF LOSS AND TITLE
All Product is sold and shipped Ex Works (in accordance with Incoterms 1990).
ATL shall make all arrangements for shipment with the carrier stated on VAR's
purchase order. VAR shall pay all shipping and transportation charges directly
to the carrier. In the event such charges have been prepaid by ATL, VAR shall
reimburse ATL purchase to ATL's invoice for such charges. ATL reserves the
right to select the means and method of shipment in the event VAR does not
inform ATL of the arrangements for shipment within twenty four hours after ATL
has informed VAR that the Product is ready for shipment.
7. Payment
All payments required by this Agreement are stated and shall be made in United
States dollars. Payments shall be delivered to ATL net thirty (30) calendar
days after shipment and sent to ATL at the return address printed on ATL's
invoice, and shall be deemed made only upon receipt by ATL at that address.
8. LIMITED WARRANTY
ATL provides a Limited Warranty to the End User as provided with the Product.
9. LIMITATION OF LIABILITY
NOTWITHSTANDING ANYTHING ELSE IN THIS AGREEMENT OR OTHERWISE, ATL MAKES NO
OTHER REPRESENTATIONS, PROMISES, GUARANTEES OR WARRANTIES, EXPRESS OR IMPLIED,
STATUTORY OR OTHERWISE, INCLUDING BUT NOT LIMITED TO, ANY IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, AND ATL EXPRESSLY
DISCLAIMS ALL WARRANTIES NOT EXPRESSLY STATED HEREIN. UNDER NO CIRCUMSTANCES
SHALL ATL BE LIABLE TO VAR OR AFFILIATED VAR OR TO ANY END USER, FOR ANY
INJURIES, DAMAGE TO OR REPLACEMENT OF PRODUCT OR PROPERTY, COSTS FOR
RECOVERING, REPROGRAMMING, OR REPRODUCING ANY PROGRAM OR DATA USED WITH THE
PRODUCT, OR ANY SPECIAL, INDIRECT, INCIDENTAL, ECONOMIC OR CONSEQUENTIAL
DAMAGES OR CLAIMS FOR LOSS OF BUSINESS OR LOSS OF PROFITS WHATSOEVER, EVEN IF
ATL WAS ADVISED OF THE POSSIBILITY OF SUCH LOSS OR DAMAGE.
10. CONFIDENTIAL INFORMATION
Both ATL and VAR shall maintain as confidential and shall not disclose to any
person outside its employ, nor use for purposes other than performance of this
Agreement, any specifications, drawings, blueprints, data, business
information, or other Confidential Information which either Party learns by
virtue of this Agreement, except as required by law, and after Written Notice
to the other Party. Upon termination of this Agreement, both Parties shall
promptly return to the other all confidential material and all copies.
3
<PAGE> 6
THIS AGREEMENT (INCLUDING PRICE LISTS AND OTHER EXHIBITS, AND ALL TRANSACTIONS
HEREUNDER) ARE UNDERSTOOD TO BE CONFIDENTIAL INFORMATION NOT TO BE DISCLOSED OR
USED BY EITHER PARTY EXCEPT AS PROVIDED HEREIN.
11. INTELLECTUAL PROPERTY RIGHTS AND INDEMNITY
ATL shall own the entire right, title and interest in and to all intellectual
property rights relating to the design of the Product that are or have been
designed and developed exclusively by ATL.
ATL shall indemnify, defend and hold harmless VAR from and against any and all
costs, expenses and damages including without limitation reasonable attorneys
fees, with respect to any claim against VAR alleging that Product in the form
sold by ATL, or any part thereof, infringes any United States patent,
copyright, trademark, mask work, or violates a trade secret of a third Party.
ATL's obligation pursuant to this Section are conditional on and subject to
VAR's compliance with each of the following conditions: (i) VAR shall give
Written Notice to ATL promptly in writing of such a claim and (ii) ATL shall
have the authority to assume sole defense thereof through its own counsel and
to compromise or settle any suits so far as this may be done without prejudice
to the right of the VAR to continue to use the Product, so purchased. If an
injunction against VAR's or End User's use, sale, lease, license, or other
distribution of the Product or any part thereof results from such a claim (or
if VAR reasonably believes such an injunction is likely), ATL may in order of
precedence: (1) procure the right to continue the use of the same for the VAR;
or (2) replace the same with non-infringing product, or (3) modify said Product
so as to be non- infringing; or, if none of the foregoing (1), (2) or (3) are
deemed reasonably feasible, (4) take back the infringing Product and refund the
purchase price less a depreciation deduction equal to twenty percent (20%) of
the purchase price for each year since the date of shipment.
This section states the entire liability of ATL for Intellectual Property
infringement. The indemnification provisions of this Section shall not apply
to any infringement arising out of the use (i) in systems if the cause of such
infringement to be the system itself or components of the system not supplied
by ATL; or (ii) for purposes not contemplated by this Agreement. Indirect and
consequential damages that may occur as a result of any such infringement, or
claim of infringement, are expressly negated, and the liability of ATL shall be
limited to its agreements herein.
VAR shall indemnify, defend and hold harmless, ATL from and against any and all
costs, expenses and damages, including without limitation reasonable attorneys'
fees, with respect to any claim alleging that VAR's end product which
incorporates ATL's Product (but not ATL's Products alone) infringes any patent,
trademark, copyright, mask work or violates any trade secret of a third party,
provided that ATL promptly notifies the VAR in writing and provides information
and reasonable assistance (at VAR's expense), and that VAR is permitted to
direct the defense of the suit or proceeding.
4
<PAGE> 7
12. FORCE MAJEURE
Neither Party shall be liable for failure to perform any of its obligations
under this Agreement during any period in which such Party cannot perform due
to fire, floor, earthquake, or other natural disaster, war, embargo, riot, or
the intervention of any government authority, provided that the Party so
delayed immediately notifies the other Party of such delay.
13. TERMINATION
Either Party may terminate this Agreement for cause if the other Party fails to
comply with any material covenant or provision of this Agreement, and does not
cure such failure within thirty (30) days after Written Notice is given to such
Party.
Either Party may terminate this Agreement at any time without cause provided
that ninety (90) days prior Written Notice is given to the other Party and all
Product scheduled to be shipped shall be accepted and paid for by the VAR.
In the event this Agreement is terminated, all unpaid invoices shall become due
and payable immediately upon termination and ATL may elect to continue or
terminate any pending order.
14. NOTICES
Any notice given under this Agreement shall be written. Written Notice shall
be sent by certified mail, postage prepaid, return receipt requested, or by any
other overnight delivery service that delivers to the notice destination, and
provides proof of delivery to the sender. Any facsimile notice must be
followed within three (3) days by Written Notice. All Written Notices shall be
effective when first received by VAR at its address first set forth above, and
by ATL at the following addresses:
<TABLE>
<CAPTION>
ATL VAR
--- ---
<S> <C>
1515 South Manchester Avenue
Anaheim, California 92802
Attention: Richard Speyer
</TABLE>
15. ASSIGNMENT
This Agreement shall be binding and inure to the benefit of the Parties hereto
and their respective successors and assigns. VAR shall not assign,
subcontract, transfer, encumber or hypothecate directly or indirectly this
Agreement or any rights herein to the benefit of any third party without the
express written consent of ATL which may be withheld in its sole discretion.
The rights of this Agreement shall not inure to the benefit of any third party.
5
<PAGE> 8
16. RIGHTS AND REMEDIES
All rights and remedies conferred by this Agreement, by any other instrument,
or by law are cumulative and may be exercised singly or concurrently. If any
provision of this Agreement is held invalid by any law or regulation of any
government or by any court, such invalidity shall not effect the enforceability
of any other provisions hereof.
17. APPLICABLE LAW
This Agreement shall be governed by and construed under the laws of the State
of California.
18. DISPUTES/ARBITRATION
The Parties shall attempt in good faith to resolve any controversy or claim
arising out of or relating to this Agreement promptly by negotiations between
executives of the Parties.
If a controversy or claim should arise one Party shall give Written Notice to
the other Party of such controversy or claim (the "Invoking Party's"), the
Parties shall use their best efforts to arrange personal meetings or telephone
conferences as needed, at mutually convenient times and places, between
negotiators for the Parties at the following successive management levels, each
of which shall have a period of allotted time as specified below in which to
attempt to resolve the dispute:
<TABLE>
<CAPTION>
LEVEL ATL VAR ALLOTTED TIME
----- --- --- -------------
<S> <C> <C> <C>
First Contract Manager Contract Manager 10 Business Days
Second Division VP Division VP 10 Business Days
Third Corporate Officer Corporate Officer 30 Days
</TABLE>
The allotted time for the first level negotiator shall begin on the effective
date of the Invoking Party's Notice.
If a resolution is not achieved by negotiators at any given management level at
the end of their allotted time, then the allotted time for the negotiators at
the next management level, if any, shall begin immediately.
If resolution is not achieved by negotiators at the final management level
within the allotted time then the Parties agree the matter shall be submitted
to binding arbitration conducted in the County of Orange, California by the
Judicial Arbitration and Mediation Service, Inc. Arbitration shall be
conducted by and in accordance with the rules of the American Arbitration
Association ("AAA"). There shall be three arbitrators, the VAR shall select
one, ATL shall select one and one shall be selected by mutual agreement of the
VAR and ATL.
VAR and ATL agree to be bound by the decisions of the arbitrators, which shall
be final, shall not be appealed, and shall allow for no trial de novo on the
same issues. The arbitrator's decision shall be rendered within thirty (30)
days following submission of the
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matter at issue, but the failure to comply with this provision shall in no way
invalidate any decision or award as may be rendered more than thirty (30) days
after submission. Upon the rendering of the decision or award, the prevailing
party shall be entitled to reasonable costs and attorneys' fees. Judgment upon
any award may be entered in any court having jurisdiction or application may be
made to such court for judicial acceptance of the award and an order of
enforcement. By agreeing to arbitration, neither VAR or ATL is waiving any of
the benefits of the statute of limitations or any equitable defense it may
have.
19. EXPORTING
ATL and VAR shall comply with all applicable laws and regulations of the United
States and any other country involved with the Product transaction concerning
export, import and reexport of goods. If VAR's Purchase Order specifies export
after passage of title, ATL shall provide VAR with all the documentation
reasonably necessary to enable VAR to obtain licenses, if required, for
exporting the Products.
Fulfillment of any Purchase Order accepted by ATL, for shipment to a
destination outside the United States, may be dependent upon the grant of
appropriate licenses, permits and similar items required for shipments of
Products from the country of export. VAR shall be obligated to take delivery
of such Products, in the United States, even if the licenses, permits or other
items required for export are not furnished to the VAR at the time the Product
is ready to ship.
In the event of a shipment to other than VAR's USA address, VAR, at its own
expense, shall furnish VAR's freight forwarder with detailed documentation and
instructions and all necessary export licenses, customs declarations and
certificates in properly executed form required for successful shipment of the
Products from the United States and entry into foreign territories.
20. SURVIVAL
The provisions of this Agreement including without limitation "Warranty,"
"Limitation of Liability," "Confidential Information," "Intellectual Property
Rights and Indemnity," "Force Majeure," "Assignment," "Rights and Remedies,"
"Applicable Law," "Disputes/Arbitration," "Exporting," and "General," shall
survive termination or expiration of this Agreement.
21. GENERAL
A. This Agreement is the complete and entire understanding between the
Parties on this subject matter and supersedes all prior agreements, proposals,
representations, statements, or understandings whether written or oral on this
subject between them. The provisions of this Agreement may be amended or
waived only by a writing executed by the authorized representatives of the
Parties hereto.
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B. In the event that either Party to this Agreement shall, on any
occasion, fail to perform any provision of this Agreement, and the other Party
does not enforce that provision, the failure to enforce shall not prevent
enforcement of the provision on any other occasion.
C. Each Party, including its servants, agents, and employees, is an
independent contractor and not an agent or employee of the other. Without
limiting the generality of the foregoing, neither Party is authorized to
represent or make any commitments on behalf of the other, and both Parties
expressly disclaim any liability therefore.
D. The headings of the sections in this Agreement are included for
convenience only and are not to be used in construing or interpreting this
Agreement.
E. The Product purchased by VAR from ATL are manufactured for standard
commercial use and are not intended to be sold for use in critical safety
systems, nuclear facilities or for use in life support appliances, devices or
systems.
F. ATL reserves the right to fulfill the requirements of any purchase
order placed pursuant to this Agreement and invoice for such orders through an
affiliate company of ATL.
G. In the event of any dispute, litigation or arbitration between the
Parties with respect to this Agreement, the prevailing Party shall be entitled
to recover its reasonable attorneys' fees and costs in addition to any other
relief to which it is found entitled.
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IN WITNESS WHEREOF, the authorized representatives of the Parties represent
that they have read this Agreement, understand it and agree to be bound by it
without exception by executing it below:
ATL VAR
--- ---
Signature:
Printed Name:
Title:
Date:
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<PAGE> 12
EXHIBIT A - PRODUCTS
<TABLE>
<CAPTION>
MODEL NUMBER DESCRIPTION NO. OF DRIVES
------------ ----------- -------------
<S> <C>
ATL2640DLT 4000 Family Libraries (Base Units)
ATL2640DLT 4000 Family Libraries (Expansion Unit)
ATL2640DLT 7000 Family Libraries (Base Units)
ATL2640DLT 7000 Family Libraries (Expansion Units)
ATL7100DLT 4000 Family Libraries
ATL7100DLT 7000 Family Libraries
ATL520DLT 4000 Family Libraries
ATL520DLT 7000 Family Libraries
</TABLE>
Leadtime
o Delivery leadtime of Product purchased under this Agreement is
approximately thirty (30) to sixty (60) days.
Leadtime
o Delivery leadtime of Product purchased under this Agreement is
approximately thirty (30) to sixty (60) days.
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EXHIBIT B -- GEOGRAPHIC LOCATIONS AND STORAGE MANAGEMENT SOFTWARE
PRODUCT MARKETING AND SALES
SALES -- VAR hereby represents, warrants and agrees that:
A. PRODUCT PURCHASED BY VAR PURSUANT TO THIS AGREEMENT SHALL ONLY
BE RESOLD TO (1) AN END USER OR (2) OR TO AN ATL AUTHORIZED AFFILIATED
VAR PURSUANT TO EXHIBIT C.
B. VAR OR AFFILIATED VAR SHALL NOT EXPORT ANY PRODUCT.
C. VAR OR AFFILIATED SHALL NOT RE-MARKET OR SELL PRODUCT WITHOUT
ADDING ATL APPROVED STORAGE MANAGEMENT SOFTWARE UNLESS (1) THE END
USER ALREADY HAS SUCH SOFTWARE FROM AN EXISTING SYSTEM OR (2) THE
SOFTWARE MANUFACTURER SELLS THE SOFTWARE DIRECTLY TO THE END USER.
D. VAR SHALL PROVIDE PRE SALE SUPPORT, INSTALLATION AND POST SALE
SERVICE OR ASSURE THAT A THIRD PARTY MAINTENANCE CONTRACT IS IN PLACE
FOR PRODUCT SOLD.
E. VAR IS AUTHORIZED TO SELL PRODUCTS WITH THE FOLLOWING STORAGE
MANAGEMENT SOFTWARE IN THE FOLLOWING GEOGRAPHY.
TERRITORY
STORAGE MANAGEMENT SOFTWARE
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EXHIBIT C -- AFFILIATED VAR SALES
Var may sell Products to approved ATL authorized Affiliated VARs. Prior to VAR
selling any Products to an Affiliated VAR, VAR must obtain ATL's approval.
APPROVAL PROCEDURE
The process for ATL approving an Affiliated VAR is as follows:
1. VAR reviews AVAR opportunity with the ATL Regional Manager.
2. If Regional Manager concurs with VAR, Regional Manager will complete
or have AVAR complete a Company profile.
3. The Region Manager will return the Company Profile to ATL Corporate
offices for final processing.
4. Once ATL has processed the Company Profile, ATL will send a Letter of
Authorization to the AVAR and VAR.
MARKETING, SALES AND SUPPORT RESPONSIBILITIES
Var is responsible for:
1. Providing support to the Affiliated VAR including:
(a) 24 hour technical phone support on the Value Added Product
(This service may be provided by an ATL authorized third party service
provider);
(b) Assistance to the Affiliated VAR in pre and post installation
services of the total solution.
2. Training Affiliated VAR in how to sell and support Value
Added Product.
3. Ensuring the End User has all the necessary support for the solution
including documentation, first call technical support on a twenty-
four (24) hour basis and on site maintenance support.
4. Promoting Product within their market, i.e., demonstrations of the
Production, trade shows, advertising and seminars.
5. Ensuring that the Value Added Products are sold by the Affiliated VAR
in accordance with the Affiliated VAR's Letter of Authorization.
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EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Selected
Financial Data" and "Experts" and to the use of our reports dated November 20,
1996, except for Note 10, as to which the date is December 19, 1996 with respect
to ATL Products, Inc., and our report dated December 6, 1996 with respect to ATL
Customer Service, in the Registration Statement (Forms S-1) and related
Prospectus of ATL Products, Inc. for the registration of 1,895,000 shares of its
Common Stock.
/s/ ERNST & YOUNG LLP
Orange County, California
December 19, 1996
